Dollar Sinks to Two-year Low Against Shekel

Down to NIS 3.53 NIS, dollar’s global weakening caused by withdrawal of Federal Reserve chairman candidate.

The dollar continues its free-fall as the foreign currency trade week begins. This morning, it fell by a further 0.9 percent and is being traded among the banks at a rate of NIS 3.5328, its lowest point in more than two years. The dollar weakened in comparison with world currencies when Larry Summers decided to withdraw his candidacy as head of the United States Federal Reserve, which affects the decline of its rate here even further. The euro sank as well, by 0.35 percent, and is being traded at a rate of NIS 4.7209.

Larry Summers, President Barack Obama’s candidate for Federal Reserve chairman, unexpectedly decided not to run for the post. President Obama is seen as preferring Summers, who served as secretary of the treasury during the Clinton administration and his main economic adviser during his first term. The current Federal Reserve chairman, Ben Bernanke, is expected to complete his term in January.

Summer’s candidacy for the post encountered a great deal of criticism both from Republicans and from Democrats, and it seems that Obama would have had difficulty receiving approval from Congress for the appointment. As a result of Summers’s decision not to run, the dollar sank by 0.6 percent against the euro, to a rate of $1.3368 to the euro, and by 0.5 percent against the yen, to a rate of 98.88 yen to the dollar. The euro grew stronger by 0.1 percent against the yen, to a rate of 132.17 yen per euro.

Officials at the research department of Forex Capital Markets (FXCM) Israel said this morning that the major event that will affect the dollar exchange rate this week is the Federal Reserve’s policy meeting, which is to take place on Wednesday. If the bank announces a reduction of only $10 billion and keeps its expansive tone, that will put a burden on the dollar. But if the bank surprises with an unexpected reduction of more than $15 billion, and uses an aggressive tone, the dollar will strengthen, the officials said.

“After sinking below NIS 3.54 at the start of the week, the dollar-shekel exchange rate sank rapidly below May’s low point of NIS 3.525 to less than NIS 3.52, before recovering slightly and rising back above NIS 3.525. If the dollar-shekel exchange rate stays below the nadir of NIS 3.525 at the start of the week and remains so from day to day, this could pave the way toward a critical threshold of NIS 3.5.," one official said, adding the Bank of Israel may have to intervene to stop the downward slide.

The Consumer Price Index in August, published Sunday night, rose 0.2 percent, coming in below analyst predictions of 0.3-0.5 percent, which would have indicated a slowdown in the country’s financial activity. Since the start of the year, the index has gone up by 1.8 percent, with the pace of annual inflation for 2013 standing at 1.8 percent. The housing index stood out prominently; it soared by 0.7 percent, confirming assessments that real-estate prices were increasing once again.

As housing prices increase, and despite the low CPI, economists believe that the Bank of Israel will keep the interest rate at 1.25 percent in its upcoming meeting. Ayelet Nir, the chief economist and strategist at the Psagot Ofek portfolio management company, said, “In the absence of inflationary risks, we expect that the Bank of Israel’s monetary committee will keep the interest rate for October at 1.25. This is because of the stabilization in the level of financial activity in the economy and the slow recovery in the level of global financial activity, and because of the ongoing increase in housing prices in Israel.”

Bloomberg