Dollar Stable Above 3.04 Shekels Amid Debate Over Fed Rate Hike Prospects

The foreign exchange markets showed calm with the US dollar trading above 3.04 shekels and the euro above 3.50 shekels in Israel. Globally, the dollar index rose slightly by 0.1% to 100.0 points against a basket of major currencies. The euro remained steady around 1.15 dollars, the British pound held above 1.34 dollars, and the dollar gained 0.3% against the Japanese yen, reaching 157.6 yen.

Alex Zvezhinski, chief economist at Meitav, expressed skepticism about market expectations for a Federal Reserve interest rate hike at the upcoming December 16 meeting. He described the 70% implied probability of a September rate increase as exaggerated, citing expected weakness in the labor market and private consumption, along with signs that inflation, though still elevated, is likely easing. Zvezhinski noted that core PCE inflation fell from 4.8% in February to 2.9% in June, returning to levels seen in the latter half of 2025, despite strong private consumption in Q2. Aside from energy prices, inflation components have stabilized or softened recently, and inflation expectations remain moderate and stable.

Meanwhile, Bank of America analysts commented that the Fed's recent decision to hold rates steady, combined with Chair Kevin Warsh's press conference, increased market uncertainty and damaged the central bank's credibility. They observed that rising inflation expectations, a weaker dollar, and falling stocks reflect investor doubts about the Fed's commitment to price stability. The bank warned that unless upcoming inflation data are notably weak, a rate hike as soon as September may be necessary to restore market confidence.