Dollar Holds Steady as Europe Anticipates Key Interest Rate Hike

The Israeli Shekel remained stable against the US dollar, trading around 3.02 NIS, ahead of the Rosh Hashanah holiday. Due to limited trading on the eve of the holiday, the current exchange rate will remain in effect until Monday. The Euro also saw minor fluctuations, trading just below 3.52 NIS.

Globally, currency markets experienced slight movements as traders awaited crucial economic announcements. The US Dollar Index dipped 0.1% to 98.7 points against a basket of major currencies. The Euro held steady above $1.15, while the British Pound saw a modest 0.1% increase, trading above $1.35.

The primary focus for international markets is the European Central Bank's (ECB) upcoming interest rate decision, expected at 3:15 PM. Forecasts predict the ECB will raise its deposit rate from 2.25% to 2.50%. This anticipated move follows a similar increase in June, the first in three years, and comes in response to a significant rise in European inflation.

August inflation in the Eurozone climbed to 3.3%, its highest level since September 2023, driven largely by a 14.3% surge in energy prices. ECB President Christine Lagarde had previously indicated that a rate hike was likely, contingent on macroeconomic data. Recent inflation figures have bolstered expectations for this decision.

Analysts offer differing perspectives on the ECB's strategy. Ulrike Kastens, a senior economist at DWS, believes further rate hikes are possible due to upward inflation risks. However, Carsten Brzeski, head of global macro at ING, suggests that additional increases beyond the expected one may not be logical if inflation remains energy-driven, potentially harming the Eurozone economy. He views the anticipated hike as a hedge against energy costs impacting broader prices and wages, noting that a 2.50% deposit rate is still considered neutral by the ECB.