The shekel continued to appreciate against the dollar and euro in inter-bank trading this morning. By mid-morning the shekel-dollar exchange rate fell 0.38% to NIS 3.22/$, a 12-year low. The shekel-euro exchange rate fell 0.32% to NIS 5.06/€.
The shekel-pound exchange rate rose 0.24% to NIS 6.391/₤ ahead of the Bank of England's interest rate decision at 2 pm Israel time today. Capital market sources believe that the UK interest rate will be kept unchanged at 5%.
Easy Forex research development manager Gil Regutkovitz says, "The shekel's appreciation against the dollar in recent years is continuing and the day when we'll see the shekel-dollar exchange rate at NIS 3/$ is probably not far off. In the past two years, the shekel has appreciated over 44% against the dollar. This amount is quite impressive compared with other currencies that have appreciated against the dollar. For the same of comparison, the euro and Australian dollar have appreciated 33% against the dollar, and the pound sterling has appreciated 15%."
The Israeli economy is growing at over 5% a year, even though the Bank of Israel predicts 4.2% GDP growth for the year, which is still much greater than the growth rates for the US, the euro bloc, and the UK. The US is projected to grow by 1% this year, and the euro block and UK by 1.5-2%.
Regutkovitz adds, "Israel's interest rate is expected to go up because of inflationary pressures. The Bank of Israel raised the interest rate by 25 basis points last month to 3.75%, and it is expected to make another rate hike this month. The US interest rate is currently at a low point of 2% and its future is cloudy. The Federal Reserve Bank kept the interest rate unchanged in June and many analysts predict that it will remain unchanged this month too, despite inflationary pressures in the US. The European Central Bank raised the interest rate by 25 basis points to 4.25% this week, although it is not expected to make any more rate hikes in the near term."
Regutkovitz predicts that the shekel will continue to appreciate against the dollar, at least in the short term, unless there are radical developments in the domestic economy or in the security situation. In the longer term, a US economic recovery should change the shekel-dollar exchange rate trend, but no signs of a change are apparent at the moment.
Yesterday's shekel-dollar representative exchange rate was set at NIS 3.23/$, down 1.1% on the day before, and the shekel-euro representative exchange rate was set at NIS 5.076/€, down 0.95%.
Easy Forex says that growing expectations that the Bank of Israel will have to raise the interest rate because of the surging inflation rate is another reason why Israeli investors are selling dollars. The dollar is also weakening on international markets; the shekel's appreciation is part of a global trend.
Published by Globes [online], Israel business news - www.globes-online.com - on July 10, 2008
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