Dollar Stable Around 3.00 Shekels Amid Global Trade Tensions

The US dollar is trading stably against the Israeli shekel, holding steady around 3.00 shekels, despite minor fluctuations in global markets. This stability comes ahead of a significant summit between US President Donald Trump and Chinese President Xi Jinping, scheduled for Thursday at the White House. The meeting aims to address the ongoing trade war between the two global powers, though deep disagreements persist regarding artificial intelligence, tariffs, and sanctions related to Iran.

Globally, the dollar index, which measures the currency against a basket of major currencies, saw a slight increase of 0.1% to 100.7 points. The Euro dipped 0.2% to trade above $1.14, and the British Pound also fell 0.2% to trade above $1.33. In Japan, the dollar gained 0.2% against the yen, reaching 157.6 yen.

Analysts suggest that rising foreign currency hedging costs could put pressure on the shekel. Alex Zabezhinsky, Chief Economist at Meitass, noted that the cost of hedging has climbed to nearly 2%, acting as a significant "penalty" that might reduce demand for the shekel and lead to its weakening. He also pointed out that institutional investors' exposure to foreign currency has remained relatively stable, but the increased hedging cost is a new factor.

Economists at Leader, led by Yonatan Katz, highlighted that while Israel's current account deficit was modest in the second quarter ($0.5 billion), a surge in exports, particularly from companies like Nvidia, is not significantly benefiting the shekel. Much of the revenue from these exports is retained abroad as "undistributed profits," with only salary payments and taxes flowing back to Israel. Consequently, the shekel is expected to be more sensitive to external market trends, especially those in the US, and the level of institutional exposure to foreign currencies.

President Trump and President Xi are expected to seek ways to strengthen the fragile ceasefire in their trade war during their second face-to-face summit this year. Despite some gestures of goodwill, both nations continue to exchange accusations and retaliatory trade measures. US Treasury Secretary Steven Mnuchin acknowledged mutual respect between the leaders but also noted that "some commitments from China have not been fully met" from a previous trade agreement.