Dollar Surges Globally After Fed Rate Hike; Trades Near 3.05 Shekels

The U.S. dollar strengthened across global markets following a quarter-point interest rate hike by the Federal Reserve, reaching approximately 100 points on the dollar index. In Israel, the dollar climbed 0.4% to trade around 3.05 shekels, while the euro dipped 0.2% to 3.5 shekels.

The Federal Reserve raised its benchmark interest rate by 25 basis points, from 3.75% to 4%, marking the first increase since July 2023. This move aligns with market expectations, with over 90% probability priced in. The decision was unanimous among the Federal Open Market Committee (FOMC) members. The Fed cited persistent high inflation, stating the rate hike will aid a quicker return to its 2% target and ensure price stability.

This rate hike occurs under the new Fed Chair, Kevin Warsh, who assumed office in May. His predecessor, Jerome Powell, oversaw six consecutive rate cuts totaling 125 basis points between December 2023 and July 2023, reducing the rate from 5.25% to 3.75%. The FOMC's updated projections indicate a strong likelihood of further rate increases this year, with 16 out of 18 participants anticipating at least one more hike, and four expecting two additional increases. Only two participants foresee no further hikes.

In Israel, the consumer price index rose 0.7% in August, bringing the annual inflation rate to 1.5%, consistent with July's figures. Roee Kadosh, Chief Investment Officer at Hachshara, noted the minimal market impact of the August inflation data, expecting it to remain stable. He anticipates the Bank of Israel will resume measured interest rate cuts in early next year, closely monitoring upcoming inflation indices.