Dollar Weakens Slightly Against Shekel Amid Global Market Shifts
The U.S. dollar experienced a slight decline against the Israeli shekel and most major global currencies on Thursday, with the dollar index also retreating. Conversely, the dollar saw a minor gain against the Japanese yen.
Locally, the dollar depreciated by 0.2% to trade at 3.017 shekels. The euro climbed 0.1% to 3.460 shekels, and the British pound rose 0.2% to 4.038 shekels.
Internationally, the euro strengthened by 0.1% against the dollar, reaching 1.148 dollars. The pound added 0.1% to trade at 1.339 dollars, while the dollar gained 0.1% versus the yen, settling at 157.45 yen. The dollar index, measuring its value against a basket of leading currencies, fell 0.1% to 100.07 points.
Despite the dollar's weakening, Dr. Ilan Gildin, partner and hedge fund manager at Carney Family Office, believes interest rate differentials create a floor for the dollar, limiting the shekel's potential strengthening. He noted that widening interest rate gaps favoring the dollar exert basic downward pressure on the shekel through traditional financing channels. A positive yield differential, especially in short-term ranges, makes holding shekels less attractive and increases foreign exchange hedging costs for Israeli institutional investors managing significant overseas assets.
Gildin further explained that in recent years, the dollar-shekel exchange rate has been influenced not only by interest rate differentials but also by its close correlation with U.S. stock market performance and Israel's risk premium. He suggested that if high U.S. interest rates weigh on Wall Street, prompting institutions to rebalance foreign exchange exposures, this could increase demand for dollars and add pressure on the shekel.
"Interest rate differentials by themselves do not necessarily have the power to create a one-way trend change in the dollar-shekel, but they certainly set a certain floor for the dollar," Gildin stated. "They make it difficult for the shekel to continue strengthening and reduce the maneuverability of local monetary policy."
