Israeli Shekel Holds Steady Near 3.00 Against Dollar After Interest Rate Cut

The US dollar traded slightly lower at 2.998 shekels following the Bank of Israel's recent decision to reduce interest rates by 0.25% for the second consecutive time, bringing the rate down to 3.5%. This move was enabled by inflation stabilizing at 1.9%, with the central bank also lowering its inflation forecast for 2026 to 1.8%. The Bank of Israel projects two additional rate cuts within the coming year. Governor Amir Yaron noted that if the ultra-Orthodox community integrates more into the workforce, tax hikes in the 2027 budget could be less severe. Addressing the constitutional crisis, Yaron emphasized that the Supreme Court is the highest authority and its rulings must be obeyed.

In the international foreign exchange market, the Japanese yen weakened further amid speculation of no imminent intervention by Japanese authorities, despite some caution among traders due to the risk of sudden yen purchases by Tokyo. The yen struggled to stay above 162 per dollar and hovered near a 217.09 low against the British pound, the lowest since 2007. The euro recently traded at 185.47 yen after a 0.5% gain in the previous session.

Market expectations for US interest rate hikes have diminished following a disappointing US employment report, leading to some dollar weakness. The euro rose slightly to 1.1442 dollars, and the British pound reached a more than two-week high at 1.34005 dollars. The dollar index stood at 100.86 points, with investors pricing in about 29 basis points of rate increases by the Federal Reserve by December, down from 38 points a week earlier.

Commonwealth Bank of Australia strategist Carol Kong suggested that current market pricing might underestimate future Fed tightening, expecting the Federal Open Market Committee to begin policy tightening in December. Attention now turns to the release of the June FOMC meeting minutes on Wednesday for further interest rate guidance, though Fed Chair Jerome Powell is known for avoiding forward guidance. Meanwhile, the Australian dollar stabilized at 0.6955 dollars and the New Zealand dollar rose slightly to 0.5702 dollars.