Dollar Surges Against Shekel Amid Global Economic Uncertainty

The U.S. dollar climbed above 3.04 shekels on Thursday, reflecting a broader strengthening of the dollar globally. The American currency rose from its official rate of 3.017 shekels. In international currency markets, the Euro weakened by 0.6% against the dollar, and the British Pound also fell by 0.6%, with the Japanese Yen experiencing a similar decline.

Investors are closely watching the upcoming summit between U.S. President Donald Trump and Chinese President Xi Jinping, scheduled for Thursday. The meeting aims to de-escalate the trade war between the two nations, though deep disagreements persist over issues like artificial intelligence and sanctions related to Iran. U.S. Treasury Secretary Steven Mnuchin expressed optimism about the leaders' mutual respect but noted that China had not fully met previous trade agreement commitments.

Domestically, economists suggest that rising foreign currency hedging costs could pressure the shekel. Alex Zabezhinsky, chief economist at Meitav, noted that while institutional investors' exposure to foreign currency has stabilized, the increased cost of hedging, nearing 2%, acts as a significant "fine" that may reduce demand for the shekel. Economists at Leader, led by Yonatan Katz, also pointed out that while Israel benefits from high-tech investments, the current account surplus does not significantly bolster the shekel, making it more sensitive to U.S. market trends and institutional foreign currency exposure.

Federal Reserve Governor Michael Barr indicated that further interest rate hikes might be necessary to curb inflation. This statement, coupled with a 14-basis point jump in U.S. Treasury yields to 5.1%, contributes to the dollar's strength. Meanwhile, falling oil prices, with Brent crude trading below $100 per barrel, could potentially ease inflationary pressures, but high U.S. interest rates continue to tighten financial conditions.