Bank of America has told clients to buy dollars against the shekel and the Hungarian forint, arguing that the Israeli currency remains overvalued. The recommendation, reported by Globes, calls for equal long positions in the dollar against both currencies over a three-month horizon, targeting a 5% move.
The bank says tighter U.S. monetary policy will keep pressuring emerging-market currencies. In its memo, the analysts wrote that the near-term backdrop for those currencies has become more challenging and that rate hikes by the Federal Reserve, expected to begin in September, should weaken them further. They also said a more restrictive Fed, partly driven by the artificial intelligence investment cycle, is tightening global financial conditions even as U.S.-led growth offsets potential positives such as the Iran agreement.
The dollar has already climbed about 7% in recent weeks after falling to below 2.8 shekels about a month ago, and is now close to the 3-shekel mark, a level not seen since the 1990s. Bank of America says the shekel’s valuation warrants depreciation and points to its heavy dependence on the S&P 500 and on emerging-market currencies through Israeli institutional hedging flows. When U.S. stocks fall, those institutions must buy dollars to maintain their currency-hedge ratios, which pushes the dollar higher and weakens the shekel.
The bank’s U.S. equity team expects the S&P 500 to end the year at 7,100 points, down from about 7,350 now, and says that, together with weaker emerging-market currencies and an overvalued shekel, should push USD/ILS higher. It set a target of 3.14 shekels per dollar, with a stop-loss level at 2.9 shekels. The memo also noted that Goldman Sachs had recommended selling shekels and buying dollars shortly before the March war with Iran and the subsequent sharp strengthening of the shekel.
