Dollar Hits 7-Month High Against Shekel Amid Global and Local Uncertainty

The U.S. dollar has reached a seven-month high against the Israeli shekel, trading at approximately 3.16 shekels per dollar, marking a significant increase since late March. Since October 27th, the dollar has appreciated by nearly 4.5% against the Israeli currency, a trend that has impacted both investors and consumers. Over the past month, the dollar gained 3.42%, and in the last five days alone, it has risen by approximately 1.58%.

Yossi Menashe, founder and co-CEO of Altshuler Shaham Financial Services, attributes the dollar's consistent strengthening since its June low of 2.80 shekels to two primary factors. Firstly, interest rate differentials: Israel has seen interest rate cuts, with no immediate pressure on the Bank of Israel to raise them, while inflation in the U.S. persists, delaying anticipated rate cuts there. Secondly, significant uncertainty surrounding both the upcoming U.S. elections and domestic political situations, including policy towards Iran post-election, adds a risk premium that weakens the shekel. Menashe noted that some market players have quickly adopted 'long dollar' positions as a short-term hedge against U.S. election outcomes, with the dollar serving as a safe-haven asset for local investors.

Eitan Kleiman, managing partner at Long Road, also pointed to the political-security situation as a burden on the shekel. He cited uncertainty regarding government formation and fears of renewed conflict with Iran as contributing factors. Additionally, declines in U.S. markets are intensifying pressure on the shekel and increasing exchange rate volatility.

While the stronger dollar increases the cost of imports, flights, and online purchases for Israeli consumers, it benefits Israeli exporters. Companies that earn revenue in dollars but incur operating and salary expenses in shekels see an immediate improvement in profitability. Kleiman explained that these companies may benefit from both increased shekel value of their dollar revenues and potential price adjustments made during periods of shekel strength. However, Menashe warned that a further significant weakening of the shekel could lead to higher imported inflation, potentially forcing the Bank of Israel to reconsider its monetary policy, possibly including further interest rate hikes if inflation resurges.