Dollar Trades Near 3 Shekels Ahead of US Inflation Data Release
The foreign exchange market is experiencing moderate movements this morning as investors await the release of US inflation data later today. The US dollar has strengthened by 0.1%, trading at 3.004 shekels. Meanwhile, the euro has risen by 0.2% to 3.465 shekels, and the British pound increased by 0.2% to 4.057 shekels. On the international stage, the euro weakened by 0.1% against the dollar to $1.153, the pound remained steady at $1.351, and the dollar gained 0.1% against the yen, trading at 159.43 yen. The dollar index, which measures the currency's value against a basket of leading currencies, rose by 0.1% to 99.78 points.
Forecasts predict the US Consumer Price Index (CPI) will increase by 0.1% monthly in July, with the core CPI rising by 0.2%. A higher-than-expected reading could reinforce expectations of a Federal Reserve interest rate hike in September. Rising oil prices are also contributing to inflationary pressures. Market participants continue to seek clues about the Fed's rate direction, following last week's weaker-than-expected employment report and Fed Chair Kevin Warsh's recent press conference, which failed to reduce uncertainty.
Analysts at ING noted a potential path for inflation to moderate throughout 2026, assuming restrained oil prices and the reopening of the Hormuz Strait. The market is currently pricing a 50% chance that the Fed will keep rates unchanged at its two-day meeting ending September 16, and a 50% chance of a quarter-point rate increase, according to CME Group's FedWatch tool.
Yossi Mansha, co-CEO of Altshuler Shaham Financial Services, explained that the forex market is caught between two main forces: the weak US employment report lowering expectations for further rate hikes and supporting dollar weakness, and the renewed rise in oil prices due to the stalled Iran agreement, which revives inflation concerns and could keep rates and yields elevated. Mansha emphasized the critical importance of today's US inflation data, stating that a moderate figure might support the view that the Fed can avoid further tightening, while an upside surprise could quickly shift market pricing and bolster the dollar.
He also noted the relative resilience of the shekel, which continues trading near 3 shekels per dollar despite rising energy prices and ongoing uncertainty around the Hormuz Strait. However, without a resolution allowing full tanker movement through the strait, the oil risk premium is expected to remain significant. Prolonged energy price increases could influence inflation expectations and yields, potentially increasing volatility in the shekel exchange rate.