Sources inform ''Globes'' that the Bank of Israel bought about $500 million this week, including $200-250 million on Tuesday. The figures are well above previous market estimates of the purchases. The Bank of Israel bought $2.5 billion in April, which boosted its foreign currency to $64.4 billion.
The shekel edged down against the dollar and euro in early trading today. The shekel-dollar exchange rate rose 0.03% to 3.749/$ and the shekel-euro exchange rate rose 0.01% to NIS 4.752/€.
Despite the massive purchases by the Bank of Israel, the shekel appreciated against the dollar this week, even as the dollar strengthened against leading currencies. The dollar is trading at $1.266/€, as it recovered most of its losses against the euro following news of the EU and IMF euro stabilization fund.
Top market sources told "Globes" that shekel's strength against the dollar was due to massive dollar sales through automatic trading systems operated by foreign financial institutions. One source said, "The Bank of Israel bought dollars and the automatic trading systems sold them. The automatic trading systems began selling dollars and buying shekels on Monday, immediately after the euro stabilization fund was announced."
Many short-term foreign currency traders have been trying in the past few days to spot the automatic trading systems' trend in order to jump on the bandwagon, which increased dollar sales. The Bank of Israel saw the scales going against the dollar and intervened massively in the market to support it against the shekel. Another reason for the intervention was the sharp fall in the euro, which pushed the shekel-euro exchange rate below the closely watched effective exchange rate. A third of Israel's exports go to the EU, and the weak euro is hurting exporters.
Traders are now talking about a support level at a shekel-dollar exchange rate of NIS 3.73/$, the level at which foreign banks have put many buy orders. Traders are also waiting for the Central Bureau of Statistics to publish the Consumer Price Index (CPI) for April tomorrow afternoon. Analysts predict that the CPI will rise by 0.6-0.7%, and the actual rise will influence the analysts' expectations about Governor of the Bank of Israel Prof. Stanley Fischer's interest rate decision for June at the end of the month. Last month, he kept the interest rate unchanged at 1.5%.
Harel Finance said, "A high CPI will strengthen assessments that the interest rate will be raised at the end of the month, and strengthen the shekel. It will be interesting to see what measures Fischer will take to maintain the currency, since this week's dollar purchases were not strong enough to influence the market."
Published by Globes [online], Israel business news - www.globes-online.com - on May 13, 2010
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