Dollar Surges 1% Against Shekel Amid Election Uncertainty

The Israeli shekel has weakened significantly against the dollar, with the dollar rising approximately 1% to 3.08 shekels. This follows a sharp strengthening of the shekel during international trading on election day, fueled by expectations of a clear electoral outcome. However, as more than half the votes have been counted, investors appear less confident in a decisive result, leading to increased volatility in the foreign exchange market.

Analysts attribute the sharp fluctuations to the uncertainty surrounding the election results. Dr. Adam Reuter, Chairman of Financial Immunities, explained that during Israeli holidays or election days when local markets are closed, international trading in the shekel-dollar pair continues, primarily in London. He noted that this trading, estimated at 40% of daily volume, is largely driven by foreign speculators who initially strengthened the shekel based on polls predicting the fall of a Netanyahu government, which they believed would benefit Israel's economy.

Yossi Frank, Owner and CEO of Energy Finance for Risk Management, described the recent movements as "purely speculative, even manipulative activity." He pointed out that this speculation intensified on the last trading day before the election, when options expirations, which traditionally boost the shekel, occurred. Frank stated that foreign banks amplified this trend, exploiting the absence of local trading and the Bank of Israel's typical non-intervention on such days. He added that as the election results became less clear, these speculative positions began to close.

Ronen Menachem, Chief Economist at Mizrahi Tefahot, acknowledged the sharp but typical reaction of the shekel-dollar exchange rate to election events, especially given high foreign institutional involvement. He advised caution with initial reactions, emphasizing that a clear economic horizon and market-supportive policies, regardless of the government's composition, would be welcomed. Menachem also highlighted that the shekel will continue to react to external factors, including regional security and U.S. stock market performance, and that further volatility is expected leading up to the U.S. midterm elections.

Dr. Ido Kalir, Head of the Finance Program at the Ono Academic College International School, believes the extreme volatility is a direct result of foreign investor activity. He anticipates the local currency market will now be influenced by Israeli investors shifting capital abroad and by institutional investors assessing interest rate differentials. Kalir's long-term analysis suggests a gradual weakening of the shekel towards 3.3 per dollar, a trend he believes might accelerate due to recent market dynamics.