Lively trading in the foreign currency markets led to an appreciation of the shekel against the dollar and the euro on Wednesday, with a de-escalation in the Syrian crisis seen as largely responsible.
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The dollar fell 1.1% against the shekel during trading on Wednesday, closing at a representative rate of NIS 3.565. This is a one-month low, and one of the lowest exchange rates of the past year. The euro dropped 1% to NIS 4.73.
Market players attributed the shekel's appreciation to greater acceptance of risk in the markets, as foreign military intervention in Syria seems to have been put on hold. Negotiations began on Wednesday on a United Nations resolution that would put Syria's chemical weapons under international control, after U.S. President Barack Obama told Americans in a televised speech on Tuesday night that diplomacy could “remove the threat of chemical weapons” without the use of force.
Joseph Fraiman, CEO of the Prico Group investment house, said that the time-out on the Syrian front had contributed to the appreciation of many currencies against the dollar. He also said that improving unemployment figures in the U.S. were expected to lead the Federal Reserve to gradually reduce its monetary stimulus program, particularly its bond market purchases, which would have an impact on the currency markets.
The Finance Ministry’s debt management unit took advantage of the favorable dollar-shekel exchange rate to carry out two hedging transactions worth a total of $125 million, the ministry stated Wednesday evening.
These transactions, similar to the purchase of dollars on the open market, are part of the accountant general’s general hedging policy, taken as part of efforts to reduce the government’s exposure to changes in currency exchange rates.
The market conditions, particularly the low dollar rate, are favorable for carrying out hedging transactions, explained the ministry. By purchasing dollars now, the treasury protects the state against the risk that the shekel may lose value in the future, which might force the state to purchase dollars more expensively in order to meet obligations and thus increase the deficit.
In August, when the dollar exchange rate was NIS 3.54, the treasury carried out NIS 325 million in hedging transactions.
Fraiman predicted that the continued appreciation of the shekel would force the Bank of Israel to once again intervene in the currency market in the near future to stabilize the value of the shekel.
Sources at the research department of foreign currency broker FXCM Israel agreed.