Israeli Shekel Strengthens Slightly as Dollar Drops to 2.99 Shekels Ahead of US Inflation Data

The Israeli shekel continued its modest appreciation against the US dollar at the start of the week, with the dollar falling by 0.2% to trade around 2.99 shekels. The euro weakened by 0.3%, trading just above 3.45 shekels. Globally, ahead of the US inflation report due tomorrow, the dollar index remained stable at 99.8 points against a basket of major currencies, while the euro and pound held steady at above 1.15 and 1.35 dollars respectively. The Japanese yen saw slight movements after a significant drop yesterday, with the dollar trading at 159.2 yen.

Rafi Gozlan, chief economist at IBI Investment House, noted in his weekly review that a sharp rise in Israeli export activity has somewhat reduced the pressure on the Bank of Israel to intervene, including on the shekel exchange rate. Supporting this, Bank of Israel data showed no foreign currency purchases in July, following interventions totaling about $1.8 billion in May and June.

In the US, President Donald Trump confirmed recent contact with Federal Reserve Chair Jerome Powell but denied reports of frequent conversations. Trump stated they spoke "once, briefly, a few days ago," contradicting a Wall Street Journal report of multiple discussions since Powell took office in May.

Meitav economist Alex Zvezhinsky highlighted a significant efficiency gain in US companies as a potential deflationary factor. US labor productivity growth continues to rise, driven by a near halt in working hours despite output growth, largely due to technological advances like AI. This productivity surge, unprecedented in 80 years outside wartime, is expected to ease price pressures by increasing supply without raising labor costs. Additionally, sectors outside AI investments are growing slowly or contracting, as seen in labor, real estate, and other investments, further contributing to inflation moderation.