Expert Who Predicted Shekel Collapse Warns Dollar Could Reach 3.4
Translated & summarized from Maariv by baba
An expert who foresaw the shekel's previous collapse, Dr. Ron Eichel, warns the dollar may rise to 3.4 shekels. He cites potential interest rate cuts in Israel while rates remain higher abroad, and negative global sentiment towards Israel as key drivers. Eichel also suggests Israeli investors may increase foreign holdings, further pressuring the shekel.
The story in 5 lines · by baba
- Expert Dr. Ron Eichel predicts the U.S. dollar could reach 3.4 Israeli shekels.
- Eichel cites potential Israeli interest rate cuts versus differing global trends as a weakening factor.
- Negative international sentiment towards Israel is seen as a significant pressure on the shekel.
- Israeli investors may increase foreign asset holdings, potentially weakening the shekel further.
- The PPP model suggests a potential shekel valuation, but actual rates can deviate significantly.
An economic expert who accurately predicted the shekel's previous decline is now warning that the Israeli currency's weakness is far from over. Dr. Ron Eichel estimates that the U.S. dollar could reach 3.4 shekels, driven by several factors.
Eichel utilizes the Purchasing Power Parity (PPP) model, which compares price levels across countries to gauge currency value. While this model suggests a potential shekel valuation, Eichel acknowledges that currency exchange rates are influenced by both long-term economic trends and short-term political forces and capital flows, which can cause volatility. He notes that the actual exchange rate may deviate significantly from the PPP model's prediction, potentially exceeding 3.5 shekels to the dollar.
A key factor Eichel identifies is interest rates. He anticipates that inflation in Israel will stabilize around the 2% target, possibly lower, enabling the Bank of Israel to continue reducing interest rates in 2027, with a potential first cut as early as November. Conversely, he expects interest rates in some developed economies to move differently. As Israeli interest rates decrease relative to those abroad, holding shekels becomes less attractive, potentially encouraging capital outflow and further weakening the shekel.
Furthermore, Eichel points to the global perception of Israel as a significant concern. Despite strong export data, he believes the overall sentiment towards Israel remains problematic, and a change in government might not quickly alter this view. This sentiment can deter foreign investment, leading to fewer currency conversions into shekels and reduced demand for the local currency. However, he acknowledges that Israel's strong high-tech sector and the activities of companies like Nvidia continue to benefit the country.
Eichel also suggests that decisions by Israeli investment managers could impact the shekel. If global stock markets fall, Israeli investors might increase their overseas investments to capitalize on opportunities, particularly in sectors like artificial intelligence, which are more accessible through foreign exchanges. This shift towards foreign assets could also contribute to the shekel's depreciation.
