The shekel has continued to weaken on the foreign exchange market this morning, following yesterday's interest rate cut by the Bank of Israel, which surprised most analysts. The shekel-dollar rate is currently 1.63% above yesterday's representative rate, at NIS 3.9208/$, and the shekel-euro rate is 1.85% higher, at NIS 4.4416/€.
FXCM Israel says in its market survey this morning, "The Bank of Israel justified its decision by the low rate of inflation and the appreciation of the shekel over the past month. In fact, the shekel has not appreciated substantially in the past month, but the upward trend in the shekel-dollar rate has been halted. The Bank of Israel apparently wants the shekel-dollar rate to cross the NIS 4/$ threshold. Alongside the interest rate cut, the Bank of Israel can also be expected to continue intervening in the foreign exchange market with the aim of boosting the rise in the exchange rate.
"The interest rate cut widens the interest rate gap in favor of the dollar, and the gap can be expected to widen further later on with the predicted interest rate hike by the US Federal Reserve.
"This interest rate cut is certainly likely to whet speculators' appetites once more, after the recent drop off in their level of activity. Speculation that, if the economy continues to crawl, the Bank of Israel could embark on a quantitative easing program, is also likely to weigh on the shekel.
"What Federal Reserve chair Yellen will have to say to the US Congress in the coming days will affect expectations about dollar interest rates. The way to NIS 4/$ is still long. The pair failed in its last three attempts to climb above this psychological barrier, and it seems that its ability to do so also depends on a renewal of the trend of a stronger dollar on world markets," FXCM writes.
Prico CEO Yossi Fraiman writes, "The Bank of Israel acted as we expected and lowered the shekel interest rate with the aim of supporting exports and reducing imports. This move is essential in view of the global currency war and interest rate cuts by countries that seek to support their terms of trade, as seen in the EU, Switzerland, the US, Australia, Russia, and even China. In our view, for the short term, the factors making for depreciation of the shekel are still in place, and support a rise in the shekel-dollar rate towards NIS 3.95 and higher, but looking at the long term the shekel could strengthen again towards NIS 3.70."
Tamir Fishman CEO Eldad Tamir writes, "The global currency war entails substantial steps to preserve a reasonable level of growth in Israeli exports, which are the cornerstone of the Israeli economy. In our view, if the figures don't improve, there could be a further interest rate cut, and we could even see the start of a quantitative easing program."
Published by Globes [online], Israel business news - www.globes-online.com - on February 24, 2015
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