Bank of Israel’s Intervention Fails to Boost the Weak Dollar

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Shekel notes and coins. Remaining stubbornly sturdy. Credit: Bloomberg

The Bank of Israel intervened once again in the dollar market Thursday, failing to boost the greenback beyond 3.447 shekels – near its lowest level in three years. The central bank, led by Governor Karnit Flug, bought between $100 million and $150 million.

By buying dollars, the central bank is increasing the quantity of shekels in the market in an attempt to lower the currency's price as calculated in dollars. Exporters in particular were wishing the Bank of Israel luck, hoping to keep their products competitively priced.

The central bank’s dollar purchases managed to weaken the shekel slightly; the dollar rose 0.06% from its three-year low at the close of trading Wednesday.

The dollar is down 0.5% against the shekel so far this year, and is down 0.2% in May. The greenback is 3.3% lower versus the shekel over the past 12 months.

Shekel-euro trading was steady Thursday, with the European currency closing at a representative rate of 4.804 shekels.

The Bank of Israel said Thursday that foreign-exchange trading totaled $96 billion in April, down from $105 billion in March. But trading in April – on days the exchanges were open in a month full of holidays – was 2% higher than in March at $5.3 billion. Foreign traders’ percentage of trading shrank to 27% in April from 39% in March.

The Bank of Israel’s foreign-currency reserves expanded by $921 million in April to an all-time-high of $86.5 billion. The bank’s dollar purchases last month included $290 billion as part of its plan to offset the support to the shekel lent by Israel’s natural gas production. The other purchases were interventions in trading that had not been announced in advance.

The research department at FXCM Israel noted that the U.S. Federal Reserve’s plan to keep U.S. interest rates next to zero over the medium term offsets any positive effect on the dollar that solid U.S. macroeconomic data may have.

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