The dollar strengthened more than 1% against the U.S. dollar in Friday trading, to a representative rate of NIS 3.71. Asked whether this was a sign that the Bank of Israel had reinstated its policy of buying dollars to prevent the greenback's further fall, a central bank spokesman refused to "confirm or deny" that the central bank was buying dollars on the market.
However, a senior source in the local capital market said that on Friday a number of foreign banks in Israel launched an aggressive dollar buying spree.
"Deutsche Bank, Morgan Stanley, Citibank and Barclay's came with tens of millions and began purchasing dollars," the source said.
Contrary to its approach in the past when the entire market knew the Bank of Israel was buying dollars, this time, the source claimed, the thinking in the market is that the purchases are being made in cooperation with banks abroad, as other central bank governors overseas do when they want to intervene in the value of the local currency.
A strong shekel makes Israeli exports less competitive in dollar terms and the central bank is therefore under pressure from export industries to tamp down rises in the value of the shekel. "You have to remember that the dollar has strengthened by 5% in recent weeks," said Yaniv Pagot, chief strategist of the Ayalon group, "against the backdrop of comments from the U.S. Federal Reserve that it would soon curb its quantitative easing" - a reference to a policy of increasing the money supply.
If the United States prints fewer dollars, the value of the greenback will erode less, Pagot explained. A reduction in interest rates here will also narrow the gap between the higher interest rates paid here and those in the United States, he said, also serving to weaken the shekel. The threat of intervention in the local currency market by the Bank of Israel remains on the table, he said.