The dollar fell Thursday to its lowest against the shekel in three and a half months, prompting speculation that the Bank of Israel will soon intervene to prevent the Israeli currency from strengthening further and hurting exports.
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The dollar lost about 0.16% on Thursday to a Bank of Israel rate of 3.7680 shekels, bringing its drop in the last eight weeks to about 3.4%.
HSBC recommended in a letter to clients this week that they short the shekel-dollar rate, saying Israel’s strong economic fundamentals would prevent the central bank from lowering its base interest rate, which is already at a historically low 0.1%, leaving it with no choice but to intervene in the currency market.
Yossi Frank, CEO of Energy Finance, concurred, saying he expected the Bank of Israel to act very soon.
“When the dollar falls below 3.80 shekels, it’s likely to fall to 3.70, which will hurt manufacturing at a time when growth is low,” he said.
Most of the shekel’s gains have occurred in off-hours trading, suggesting that speculators are driving up the rate and recommended buying greenbacks, Frank added.
A meeting on Friday of U.S. Federal Reserve policymakers could be the catalyst for a strong dollar move. Investors are awaiting a speech by Fed Chair Janet Yellen for more definitive clues about the timing of a rate hike.
In terms of the shekel-dollar rate, the market estimates the odds of a Fed hike at just 21%. If Yellen signals a rise is imminent, the dollar should strengthen on its own.