Shekel Dips Slightly as Inflation Data Looms in US and Israel

The Israeli shekel weakened slightly at the start of the inflation week, with the US Consumer Price Index (CPI) for July set to be released on Wednesday and Israel's corresponding inflation data due on Friday. The US dollar rose by 0.2%, trading at 3.00 shekels, while the euro increased by 0.2%, trading above 3.47 shekels. Globally, the dollar index gained 0.2% to 99.7 points against a basket of major currencies. The euro remained stable above $1.15, the British pound held steady just below $1.35, and the dollar rose 0.3% against the Japanese yen to 158.2 yen.

The upcoming Israeli inflation figures are the last before the Bank of Israel's next interest rate decision on September 1, with the current rate at 3.5%. Economists at Leader, led by Yonatan Katz, highlighted the complex challenges facing Bank of Israel Governor Amir Yaron and the monetary committee. They noted conflicting trends: low inflation expectations and industrial slowdown due to shekel appreciation support rate cuts, while full economic activity recovery and severe labor shortages argue for cautious monetary policy. Wage pressures pose a real inflation risk. Despite the shekel's 0.7% appreciation against a currency basket last week and falling oil prices, Leader forecasts inflation at 2.1% over the next year, making a rate cut below 3.25% unlikely.

In the US, markets are still digesting a very weak jobs report released on Monday, which reduced expectations for a Federal Reserve rate hike in September. The July inflation data will complete the picture; a downward surprise could significantly lower the chances of a near-term Fed rate increase. Additional US employment and inflation data for August will be released before the Fed's next meeting on September 16. Yossi Mansha, co-CEO of Altshuler Shaham Financial Services, said the weak US jobs report shifted market focus to inflation data, which if showing moderation, could support the Fed holding rates steady and keep pressure on the dollar. Conversely, an upward inflation surprise could alter rate expectations and strengthen the US currency.