Israeli Shekel Strengthens as US Dollar Dips After Fed Rate Hike

The Israeli shekel saw gains against major currencies on Thursday, mirroring slight movements in the global foreign exchange market following the US Federal Reserve's interest rate increase the previous day. Locally, the dollar fell 0.4% to trade at 3.034 shekels, the euro declined 0.3% to 3.482 shekels, and the pound weakened by 0.2% to 4.064 shekels.

Internationally, the euro edged up 0.1% against the dollar, while the pound also saw a 0.1% rise. In Japan, the dollar dropped 0.4% against the yen. The dollar index, measuring its value against a basket of major currencies, weakened by 0.1%.

The US Federal Reserve raised its benchmark interest rate by 25 basis points, from 3.75% to 4%, aligning with market expectations. This move, the first rate hike since July 2023, aims to curb inflation and bring it closer to the Fed's 2% target. The decision was unanimous among the 12 members of the Federal Open Market Committee (FOMC).

Fed Chair Kevin Warsh, who took office in May, stated that summer inflation data did not indicate significant improvements in underlying trends. He acknowledged that the rate hike would not directly lower high oil prices but could prevent energy cost increases from spreading throughout the economy. Dr. Ilan Gildin, a partner at Carny Family Office, described the hike as a delayed correction to earlier rate cuts in late 2025, which he deemed unnecessary and contributed to a low real interest rate amid persistent inflation. Gildin noted that market signals, such as rising US 10-year bond yields above 5% and increased mortgage rates, had indicated for months that the Fed's previous easing policies were counterproductive. He believes the current decision signifies the Fed's acknowledgment of the need to reverse those measures to restore credibility.

Gildin also pointed out the Fed's limited ability to control inflation driven by geopolitical supply shocks affecting energy prices. He highlighted that the US economy benefits from government deficits and significant capital investment in AI infrastructure, creating tailwinds. Consequently, Gildin suggested the rate hike is perhaps the Fed's only remaining tool to cool the broader economy and offset external inflationary pressures. Despite some analysts questioning the Fed's capacity for further hikes, the committee's projections for an additional increase indicate a forced adaptation to a reality where the era of low interest rates has ended, and the fight against stubborn inflation must begin.