The shekel is stronger against the dollar and against the euro in inter-bank trading this afternoon after the Bank of Israel Monetary Committee announced yesterday that the May interest rate would remain unchanged at an historic low of 0.1%. To stem the strengthening of the shekel, market sources estimate that the Bank of Israel purchased $50-75 million in foreign currency this morning.
The purchases moderated some of this morning's exchange rate rises. In the early afternoon, the shekel-dollar exchange rate was trading down 0.70% against the dollar at NIS 3.904/$, and down 0.41% against the euro at NIS 4.242/€.
Yesterday, the Bank of Israel set the shekel-dollar representative exchange rate at NIS 3.931/$, up 0.178% on last Friday's rate, and set the shekel-euro representative exchange rate at NIS 4.26/€, down 0.211%.
FXCM Israel research department said this morning, "The fall in the shekel-dollar exchange rate yesterday afternoon below NIS 3.90/$ was a major technical breakthrough that could indicate a deeper correction downwards. The market sees between the lines a clear hint that the Bank of Israel intends lowering the interest rate in the coming months or implementing quantitative easement even though the Bank of Israel's rhetoric resembles last month's announcement, disappointing the shekel's short traders."
FXCM added, "The Bank of Israel finds itself a victim of its own rhetoric. Following its threats in recent months about the possibility of implementing extreme measures such as cutting interest or introducing quantitative easement, the market will now not make do with anything less in order to weaken the shekel. If this acceleration downwards continues, the Bank of Israel will have to intervene in trading to halt the shekel strengthening."
"On Wednesday the US interest rate decision will be published and here too nothing dramatic is expected. FXCM Israel said, "If a dovish note is heard from the Fed and there is hesitation about hiking the interest rate, this could speed up the strengthening of the shekel against the dollar."
Published by Globes [online], Israel business news - www.globes-online.com - on April 28, 2015
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