Dollar Gains as Bank of Israel Intervenes

Central bank buys up to $400 million in foreign currency.

Bloomberg

After two days of sharp losses for the dollar, the Bank of Israel stepped into the foreign currency market Wednesday and sent the U.S. currency higher.

The central bank intervened twice during forex trading, each time buying what dealers estimated was between $150 million and $200 million worth of foreign currency.

As a result, the dollar, which had been trading as low as 3.92 shekels, strengthened to a Bank of Israel rate of 3.9480 for the day, a gain of 0.56%. In late trading, it was at 3.9533 shekels.

The euro also appreciated to 4.3355, a gain of 0.5% and was trading at 4.3358 late in the day.

Meanwhile, the Finance Ministry did its part. TheMarker has learned that the treasury conducted dollar-shekel hedging trades Wednesday in the tens of millions of dollars. It was the second day in a row that the treasury took advantage of the weak dollar to make its first hedging trades of the year, after making 1 billion shekels ($250 million) of them in 2014.

The dollar-shekel rate has been on a roller coaster ride since Thursday, when the British bank HSBC reported that the Bank of Israel would cut its base lending rate this week to minus 0.1% and launch a program of quantitative easing, or QE. The report lifted the greenback more than 3.5% and sent Tel Aviv Stock Exchange prices higher.

But the central bank said Monday it would not cut the lending rate and did not have any immediate plans for a QE program, in which the central bank buys up government bonds in the open market with the aim of injecting more cash into the economy and stimulating demand for lending and investment. Monday’s announcement sent stocks and, especially, the dollar down over the next two days.

A QE program and lower interest rates would discourage foreign investors from buying and holding shekels.

Currency traders said gains for the dollar like those seen Wednesday would not last for long.

“We believe the dollar will head back [weaken] — what the Bank of Israel did is just a drop in the bucket. It was too little, too late,” said Eyal Cohen, CEO of CCapital. “There’s constant pressure on the dollar when it reaches high levels, both from exporters and from speculators. The moment people understood that, in contrast to what HSBC said, there won’t be any QE, the dollar began to weaken.”

In global markets, the euro climbed toward $1.10 against the dollar Wednesday and gained against most major currencies, helped by a robust survey of German business morale that added to signs that an economic recovery in the euro zone is strengthening.

The dollar index lost 0.4%, to trade at 96.781. On Tuesday it set a two-week low of 96.387, down roughly 4% from a nearly 12-year high of 100.39 struck in mid-March.