Israel’s shekel has strengthened unusually fast in recent years, and this analysis says the move is driven by a mix of global markets and local capital flows. The biggest external forces are rallies in Wall Street, especially the S&P 500, weakness in the dollar worldwide, and hedging activity by Israeli institutional investors. On the domestic side, the article points to a wave of tech exits, growing investment in AI and defense, and renewed foreign inflows. The stronger currency helps consumers but hurts exporters, competitiveness, and parts of the broader economy.
A key mechanism is the hedging behavior of pension, provident, and education funds, which hold large overseas positions, mainly in U.S. equities. When the S&P 500 rises, the dollar value of those assets rises too, and institutions rebalance by selling dollars and buying shekels to maintain their hedge ratios. The article estimates that between 2021 and 2025, a 1% rise in the S&P 500 typically strengthened the shekel by about 0.2% to 0.31%, or 0.25% on average. In 2026 that relationship became stronger, about 0.45%.
The dollar’s broader moves matter too. The analysis finds that a 1% rise in the euro against the dollar is associated with a 0.49% rise in the shekel versus the dollar. In 2023, however, the model expected an 8.4% shekel gain, but the currency actually weakened 3.1%, largely before October 7, amid falling foreign investment and uncertainty tied to the judicial overhaul. In 2024 the shekel also underperformed expectations, while 2025 saw a 12.5% appreciation, mostly explained by global equity gains and a weaker dollar. In 2026, by contrast, the shekel gained 6.2% even though global factors would have implied only about 0.5%, suggesting a much larger domestic contribution.
Israel’s trade surplus of roughly $20 billion to $30 billion a year, driven largely by high-tech services, gives the currency long-term support. Foreign investment into Israel peaked at $58.9 billion in 2021, fell to $23.8 billion in 2022 and $7.4 billion in 2023, then recovered to $24.8 billion in 2024 and $39 billion in 2025. Israeli investment abroad also peaked in 2021 at $77.6 billion and later declined, narrowing the gap between outbound and inbound flows. By 2026, the biggest domestic driver appears to be the completion of huge deals, especially Wiz’s $32 billion sale to Google, plus CyberArk’s sale to Palo Alto Networks and Armis’s $7.75 billion sale to ServiceNow. Those closings, along with AI-related gains at Nvidia, growth at Tower, Nova and Camtek, and strong demand for Israeli defense and cyber companies, are said to be pulling money into shekels.
The article adds that Bank of Israel’s rate stands at 3.75%, about equal to the U.S. rate and above the ECB’s 2.25%, so interest-rate gaps do not explain the 2026 rally. Exporters are the main losers, especially software firms facing AI competition and labor-intensive exporters facing higher costs. The bottom line, the piece argues, is that in 2025 the shekel rose mainly because of global forces, but in 2026 it is strengthening mainly because of what is happening inside Israel.
