The shekel-dollar exchange rate broke through the NIS 3.50/$ level this morning for the first time in three months, rising by 0.8%. The shekel-euro rate also rose this morning, but by less.
Foreign currency trading is taking place against expectations about next Monday's announcement by the Bank of Israel on the interest rate for August. Market sources believe that Governor of the Bank of Israel Stanley Fischer will leave the interest rate unchanged, given that the Consumer Price Index (CPI) rose by just 0.1% in June.
In the US, the prevailing belief on Wall Street is that US Federal Reserve Chairman Ben Bernanke will have to raise the interest rate as inflation in the US continues to spiral. The narrowing gap interest rate gap between the shekel and dollar has bolstered the greenback. The dollar also continued to strengthen against leading currencies yesterday.
Another factor strengthening the dollar against the shekel is the increase by the Bank of Israel of its daily foreign currency purchases to $100 million from $25 million. The central bank's intervention is designed to strengthen the dollar against the shekel. The move has led to a change in positions by foreign currency traders, who now prefer the dollar over the shekel.
At the same time, the $25 billion rescue plan for the US's two main mortgage providers, Freddie Mac and Fannie Mae, has made investors feel slightly more confident about the financial sector. Also having a considerable impact on the dollar are commodity prices, with oil falling 3.1% yesterday, and gold falling 2.4%.
The shekel-dollar rate is currently up 0.84% at NIS 3.502/$, and the shekel-euro rate is up 0.33% at NIS 5.4897/$. The shekel-dollar rate was set 0.231% higher yesterday at NIS 3.473/$, and the shekel-euro rate was set 0.767% lower at NIS 5.4719/€.
Online foreign currency broker Finotec says that if the interest rate gaps continue to narrow, the shekel will come under increasing selling pressure. From the technical perspective, the shekel-dollar rate has remained at around NIS 3.50/$, but has still not broken through this resistance level. A breakthrough could send the shekel-dollar rate up towards NIS 3.64/$, making a change in trend more likely. The shekel-dollar rate currently has support at NIS 3.436/$.
Published by Globes [online], Israel business news - www.globes-online.com - on July 24, 2008
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