Ahead of the imminent interest rate cut by the US Federal Reserve this week, the shekel is continuing to strengthen today against the dollar and against the euro. In morning inter-bank trading, the shekel-dollar exchange rate is down 0.84% against the dollar at NIS 3.471/$ and down 0.82% against the euro at 3.869/€.
Yesterday, the Bank of Israel set the shekel-dollar representative rate down 0.709% at NIS 3.500/$ from Monday, and set the shekel-euro rate down 0.533% at 3.902/€.
The shekel is trading below the psychologically important barrier of NIS 3.50/$ against the dollar for the first time since March 2018 and below the NIS 3.90/€ level for the first time since April 2017. Yesterday the shekel-sterling representative rate was set down 1.949% at NIS 4.261/£, its lowest rate since July 1993, as investors fear a no-deal Brexit.
Prico Risk Management and Investments CEO Yossi Fraiman said, "The forex market is flooded with foreign currency supply resulting from the actions of exporters and financial bodies. Supply surplus in a period of low demand for foreign currency, and expectations for a dollar interest rate cut, which will narrow the rate gap between the shekel and the dollar, are hitting the worthwhileness of investing in the dollar. There is also seasonal demand for foreign currency from Israelis traveling abroad on vacation. All this is dramatically affecting the exchange rate."
Fraiman added, "The weakness of the dollar in Israel is in contrast to its strengthening worldwide. This is dragging the nominal effective rate, the Bank of Israel's anchor rate for setting monetary policy (a basket of the world's currencies weighted to reflect Israel's trade) to a historic level of below 75 points. The ongoing deterioration of trade terms for Israeli exporters challenges local industry, which is required to compete with markets in which the exchange rate does support exports and salary costs are lower than Israel. In the past Bank of Israel intervention in foreign currency trading has only influenced for the short term, and it is worth supporting trade terms beyond the fiscal dimension with incentives that will offset the influence of the exchange rate. For example, financial incentives for improved productivity, municipal taxes, streamlining programs, and increasing production. Without government assistance, looking to the long term, factories without the major advantage of operations in Israel, will choose to transfer their activities overseas."
Published by Globes, Israel business news - en.globes.co.il - on July 31, 2019
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