U.S. Dollar Hits 21-month High Against the Shekel

The greenback is benefiting from the strong U.S. economy, while the shekel is being stung by expectations of another rate cut.

Bloomberg

The dollar on Friday hit its highest level against the shekel since January 2013, with the representative rate set at 3.7930, up 0.69% for the day. The euro rose 0.43% against the Israeli currency to 4.7931 shekels.

Since the end of July, the dollar has climbed about 11% against the shekel, buoyed in part by expectations that the Bank of Israel might further cut its key interest rate or take expansionary monetary steps such as the purchase of government bonds on the open market.

The central bank will make its next rate decision on Monday.

“The strengthening of the dollar against the shekel is expected to continue in the near term, albeit at a more moderate pace,” Union Bank said in its weekly survey released on Friday.

“The strengthening stems from both ... an improvement in the American economy versus a slowdown in Israel, and from interest-rate cuts by the Bank of Israel, which could lower the rate by another 0.1 to 0.15 point in the coming months. There are also fears of an escalation in the security situation in light of recent events in Jerusalem.”

There has been unrest in Jerusalem since the summer; last week a man from the Silwan neighborhood deliberately drove his car into a light-rail stop, killing a baby girl.

Prico Risk Management predicted that the dollar could pierce 3.80 shekels. Moshe Shalom, who heads the research department at FXCM Israel, attributed the dollar's strength against the shekel largely to the greenback’s current vigor around the world.

“Some of the reasons can be pinned to the good earnings-report season on Wall Street and the improvement in macroeconomic figures, and some come against the backdrop of a decline in investor confidence in countries represented by other leading currencies, particularly the euro,” Shalom said, adding that confidence in the U.S. economy was growing.

But Shalom said he thought there had been no significant change in the Israeli economy over the past month, “so therefore the expectation is that the [Bank of Israel] will leave the interest rate unchanged.”