Shekel steadies as market recovers from volatility

The shekel is stable against the dollar and strengthening against the euro in inter-bank trading this morning. The market remains unsettled in the wake of the HSBC report last Thursday that the Bank of Israel would lower the April interest rate by 0.2% to minus 0.1% and launch a quantitative easing program. In the event, the report was incorrect and after weakening sharply on Friday, the shekel has soared in the past few days.

The shekel-dollar exchange rate is trading up 0.07% at NIS 3.929/$ and the Israeli currency is down 0.22% against the euro at 4.305/€

Yesterday, the Bank of Israel set the shekel-dollar representative exchange rate at NIS 3.926/$, down 2.29% on Monday's rate, and set the shekel-euro representative exchange rate at NIS 4.314/€, down 1.363%

FXCM Israel research department said this morning, "The shekel-dollar exchange rate continues to fall as the market tries to recover from the false speculation that preceded the interest rate decision on Monday and resulted in the exchange rate falling like a stone. Yesterday the exchange rate even touched NIS 3.90/$ before recovering to around NIS 3.92/$. It may very well be that this is the range in which the two currencies will remain in the short term, moving around between 3.90 and 4, at least until the Bank of Israel's intentions become clear."

FXCM Israel added, "Despite the market's disappointment over the Bank of Israel's decision, quantitative easing is still on the agenda. The Bank of Israel is very concerned about deflation and its destructive long-term implications for the economy. If we see a continued trend of prices falling, then the Bank of Israel will introduce this policy. The Bank of Israel's decision on Monday simply expressed a patient approach and waiting for more macroeconomic and inflation data before moving ahead with a dramatic and far-reaching measure. It is reasonable to assume that in the near future macroeconomic data on domestic inflation will have the greatest influence on the shekel. If we see a sharp fall in the shekel-dollar exchange rate, this can also act as a catalyst for the Bank of Israel to adopt quantitative easing. In this way the market might compel the Bank of Israel to implement this policy earlier than planned."

Published by Globes [online], Israel business news - www.globes-online.com - on March 25, 2015

Shekel steadies as market recovers from volatility

FXCM Israel: In the short term the shekel-dollar rate will move between 3.90 and 4.