The shekel-dollar exchange rate touched NIS 3.04/$ at the end of last week, a historically low level. In fact, it’s thirty years since the rate was so close to falling below NIS 3/$. Among the reasons for the shekel’s strength, besides macro figures, are the ceasefire with Iran and the official talks between Israel and Lebanon.
The sharp appreciation of the shekel reflects the market’s optimistic expectations, but the uncertainty is still great. Market sources see the risk of entanglement in Lebanon and of the Iran ceasefire breaking down as substantial threats to the currency’s strength.
The experts outline who wins and who loses from the shekel’s appreciation; what effect geopolitical events will have; and what the Bank of Israel will do.
Over the past year, the shekel has strengthened by 22% against the US dollar, more than any other currency of a substantial economy. The dollar has weakened against most of the major currencies, but by much less.
Leader |Capital Markets chief economist Jonathan Katz explains that it is more correct to compare the shekel to the basket of currencies of Israel’s main trading partners, a more diverse and less volatile metric. Even on that measure, the shekel has strengthened by 2.7% since the outbreak of the current war. "That’s a very strong expression of the fact that the market expects positive change in Israel’s geopolitical position. Added to that are the strengths of the economy, particularly the technology sector, continued expansion of fund-raising overseas, but still, I admit that I was surprised by the extent of the currency’s appreciation," Katz says.
Factors supporting the shekel
"We’re talking about a currency pair that is impacted by many variables, local and global, that are very hard to predict over time," explains Phoenix Financial chief economist Matan Shitrit. He says that in the foreseeable future there are several factors supporting appreciation of the shekel, but that the trend could change quickly - for example if the ceasefire collapses and hostilities resume.
"Among the main factors one can list the decline in Israel’s risk premium in the past week, which supports the shekel, together with the sharp rises on the local stock market. In addition, the dollar’s global weakness has also contributed to the fall in the exchange rate. To that can be added the rally on Wall Street, which provides a following wind to the shekel via the hedging mechanisms of the financial institutions exposed to the dollar," he adds.
Shitrit cautions, however, that in the event of renewed escalation in the confrontation with Iran, the risk premium will rise, global sentiment will change for the worse, and the shekel will come under pressure. "But for anyone who nevertheless is looking for the ‘winning number’, one of the Bank of Israel’s models presents the link between the US stock market and the shekel-dollar exchange rate. The average rate produced by this indicator is currently NIS 2.95/$," he says.
How far are we from a prefix of 2? Katz explains that the market is not linear, and that the expectations aroused by "good news" sometimes lead to an overreaction that moderates later. He says, however: "We are going through tough times, but Israel’s macro position is very strong. The economy has demonstrated resilience, and the war will have a positive effect on defense exports. We are in an event that supports the shekel, as long as we don’t slide into a war of attrition and the campaign against Iran ends within the year. All the same, it must be acknowledged that the shekel is currently mainly pricing the optimistic scenario.
"At the moment, developments on the northern front seem to me to be more problematic than Iran in the foreseeable future. If that front calms down, it will lead to even sharper appreciation of the shekel, whereas escalation is liable to lead to the reverse scenario," he says.
Winners and losers
The ones mainly paying the price of the shekel’s significant appreciation are the exporters, whose revenue is being eroded. There are exporters and exporters, however, and the weaker ones are suffering more. Katz explains that in the traditional exporting sectors, any slight appreciation erodes profitability. By contrast, technology exporters, although they are hit, since they receive less in shekel terms and have to pay salaries in the local market, have wider profit margins in the first place. Defense exporters will also gain substantially despite the strengthening of the shekel, as demand for Israeli defense products is expected to grow,
Katz says that Israeli manufacturers are also hurt, since they have to compete with imported products that have become cheaper. Conversely, importers gain.
"At the broader level," says Shitrit," the strengthening of the shekel contributes to a lowering of inflationary pressures, and so it could help consumers by moderating the rate of erosion of their purchasing power, and through interest rate cuts, if the trend persists."
"On the other hand, Israeli investors exposed to overseas assets and to foreign currency are liable to see lower returns in shekel terms, even if in dollar terms the asset rises in value," says Katz, which is relevant to the many Israelis exposed to the S&P 500 Index.
Katz adds that households benefit directly, as cheap imports lower upward pressure on prices, and flights, entertainment, personal imports, and cars all become cheaper. Some local industries dependent on imports are also among the big winners.
The appreciation of the shekel could also put interest rate cuts back on the agenda, as long as annual inflation remains within the Bank of Israel’s 1-3% target range. The interest rates market continues to price in two interest rate cuts in the coming year. Katz, however, sees just one interest rate cut before the end of 2026, in October.
Published by Globes, Israel business news - en.globes.co.il - on April 13, 2026.
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