Shekel Weakens After Finance Minister Calls Israeli Currency 'Too Strong'

Dollar retains its position above 3.6 shekels for a third day.

Reuters

The dollar retained its position above 3.6 shekels for a third day on Tuesday – its strongest in a year – as Finance Minister Yair Lapid told Bloomberg News that the Israeli currency remains “too strong.”

The dollar gained another 0.25% on the shekel to a Bank of Israel rate of 3.6090, marking a climb of about 5% in six weeks, and was at 3.62 shekels in late trading. The euro weakened 0.17% to a Bank of Israel rate of 4.6536,

“We think a shekel around 3.7-3.8 would be good for industry, good for Israeli high-tech, good for the economy, good for growth,” Lapid said in a rare comment about the exchange rate.

The Israeli currency wasn’t alone in weakening as the dollar hit a 14-month peak against the euro Tuesday on optimism that the United States economy is growing in line with expectations that the Federal Reserve may begin raising interest rates next year.

The euro has continued to deteriorate since the European Central Bank last week cut rates to new lows and launched an asset-purchase program to ward off deflation.

“The bigger picture is good things in the U.S. and not so good things overseas,” said Marc Chandler, chief currency strategist at Brown Brothers Harriman in New York.

The shekel has been losing value to the dollar amid back-to-back interest-rate cuts by the Bank of Israel that have left its base lending rate at an all-time low. The currency has also been weighed down by signs of a slowing Israeli economy and delays in approving the 2015 budget.

David Mesika, CEO of the Matach24 brokerage, said he believed the Bank of Israel was overshooting in its efforts to bring down the shekel with what he called “aggressive” dollar-buying. He cited a central bank report Monday that showed a 27% increase in foreign currency trading in August, growing activity by foreign dealers and a 3.3% decline in the trade-weighted average shekel exchange rate.

He called the strategy “fundamentally defective” said it was creating “panic among investors and encouraging blatant market failure with a price bubble.”

“The Bank of Israel must reduce its aggressive dollar-buying so that the shekel can restore its balance versus foreign currencies and restore investor confidence, which will strengthen the shekel,” Mesika said.

With reporting by Reuters.