Israeli Shekel Recovers Slightly as Dollar Weakens Amidst Market Uncertainty
Translated & summarized from Calcalist by baba
The Israeli shekel strengthened against the dollar and euro at the start of the week, recovering slightly from recent losses. Economists cite global market drops and political uncertainty as key factors weakening the currency, and believe interest rate cuts are unlikely in the near future. Inflation forecasts have been revised upwards due to the shekel's depreciation.
The story in 5 lines · by baba
- The Israeli shekel strengthened against the dollar and euro at the start of the trading week.
- The dollar weakened by 0.5% to around 3.17 shekels, and the euro fell 0.4% to near 3.54 shekels.
- The shekel has depreciated 2.4% against the dollar last week and 13.5% since late May.
- Economists believe interest rate cuts are no longer on the horizon for Israel.
- Inflation forecasts for Israel have been revised upwards to 2.4% for the coming year.
The Israeli shekel strengthened at the start of the trading week against the dollar and the euro. The dollar weakened by 0.5% to around 3.17 shekels, while the euro fell 0.4% to near 3.54 shekels. This comes after the shekel depreciated by 2.4% against the dollar last week and has fallen 13.5% since the end of May.
Economists at Bank Hapoalim attribute the shekel's weakening primarily to global stock market declines and a buildup of political uncertainties. They also noted that Israel's lack of a current account surplus exacerbates market reactions to political events and volatility. Furthermore, the economists stated that interest rate cuts are no longer on the horizon for Israel, as the window for such a move has effectively closed due to the shekel's depreciation and political ambiguity, despite inflation expected to return to the target range by year-end.
Meanwhile, the yield on ten-year Israeli government bonds rose slightly to 4.25%, diverging from trends in the US and Europe. This narrowing yield gap with the US, now around 0.6%, suggests the market anticipates no further interest rate reductions in Israel and has less confidence in the shekel's long-term strengthening.
Economists at Leader, led by Yonatan Katz, have revised their inflation forecast upwards due to the shekel's depreciation. They cited the shekel's 2.2% weakening against a basket of currencies last week, influenced by US stock market drops and election results perceived as less supportive of Israel. However, they also pointed to a 14% decrease in oil prices, linked to reduced escalation risks with Iran, and a 1.6% drop in agricultural commodity prices in October, particularly grains. Assuming stable exchange rates and oil prices around $85 per barrel, their inflation forecast for the coming year is now 2.4%, up from 2.3%.
