The shekel opened the week with only modest moves in foreign exchange trading after falling 1.2% against the dollar last week on renewed market attention to an emerging U.S.-Iran deal. In early trading, the dollar slipped 0.1% to above 2.95 shekels and the euro fell 0.2% to below 3.39 shekels, while the dollar index was unchanged at 100.9 and the euro traded just above $1.14, then around $1.32 after a 0.1% decline.
The latest weakness in Israeli assets followed reports of progress in talks between the United States and Iran in Switzerland. A joint statement from mediators Qatar and Pakistan said the “Lake Lucerne summit” was held in a “positive and constructive atmosphere” and that encouraging progress was made, including the creation of a mechanism for further talks.
Meitav chief economist Alex Zabezhinsky said Israeli markets underperformed last week because of the deal in the making and its possible implications for Israel. He noted that the shekel weakened despite a 2.4% rise in the Nasdaq, while the TA-125 was among the world’s weakest stock indexes and Israeli government bond yields rose, especially on 30-year debt. He said it is hard to know whether the selloff is only a temporary reaction to bad news or a deeper shift in how investors view Israeli risk, warning that if it is a new trend, investors are unusually exposed to Israeli assets after a long period of outperformance.
Bank Hapoalim said annual inflation stayed at 1.9% in May, unlike the global trend of rising inflation, mainly because of the stronger shekel and the limited impact of higher world oil prices on Israeli energy costs. The bank expects inflation to be 1.7% over the next 12 months, though rent and wage growth could limit a sharper decline and some tax increases from a future government could lift inflation in early 2027.
Hapoalim also said the Bank of Israel cut rates in late May and bought $801 million in foreign currency, with estimates that buying continued in the first half of June. The bank sees another rate cut likely in July and markets now price in three cuts over the coming year to 3.0%, though it thinks that full path is less likely because the effect of shekel appreciation on inflation is fading and global rates are rising. In contrast, Leader Capital Markets, led by Jonathan Katz, said the shekel is likely to keep strengthening despite last week’s disappointment over the Iran deal and the continued fighting in Lebanon.
