The dollar lost even more value versus the shekel, dipping below 3.25 shekels to the dollar in trading on Tuesday. This puts the U.S. currency down 6% versus the shekel for the year 2020.
The trend has continued despite the Bank of Israel’s intervention in the foreign currency market over the past few weeks. The central bank bought $350 million U.S. dollars Tuesday in an attempt to push down the value of Israel’s currency.
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The reasons for the weakening dollar include optimism about a recovery for the global economy in the wake of promising vaccine news, as well as expectations that the U.S. government will launch another economic incentive program.
The shekel is also trading at a record high vis-a-vis a basket of currencies that includes Israel’s main trading partners. The other currencies have declined against the shekel by an average of 4% since the beginning of the year.
Irit Motzrafi-Majar,an economist at Bank Hapoalim’s financial division, said that factors that could reverse the trend include “a shift in trends in the stock market, the beginning of the vaccination campaign and re-opening Israel to travel abroad, all of which will decrease the pressure causing the shekel to appreciate. We see that the market isn’t affected by the chance that there will be another round of elections, but a cut to Israel’s sovereign credit rating could change the momentum, for example.”
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The reason that the U.S. dollar has depreciated around the world is the expansionary fiscal and monetary policy led by the U.S. Federal Reserve Board and the Department of the Treasury. “From this perspective, the U.S. elections even expedited the dollar’s depreciation around the world, under the assumption that the Democrats would take an even more expansionary policy.”
In Israel, the factors influencing the shekel’s appreciation are short-term, she says. “New records on Wall Street are pushing institutional investors’ portfolios of foreign assets to record valuations, and in response they’re increasing their currency hedges. Likewise, a rapid increase in exports despite the global recession, and the closed skies that limited flights by Israelis abroad, are also two factors strengthening the shekel,” she said.
The euro is also strengthening against the shekel – and rose to 3.947 shekels to the European currency on Tuesday. Since the beginning of the year, the euro has risen against the shekel by about 2 percent.
All told, the shekel has risen almost 5 percent in 2020 against the basket of currencies of Israel’s major trading partners.