Shekel at weakest for 21 months against dollar

Shekel Photo: ASAP Creative
Shekel Photo: ASAP Creative

Excellence chief economist Amir Kahanovich: Bank of Israel foreign currency purchases to offset gas revenues were unnecessary.

The shekel is weakening today against the dollar and stable against the euro. In after-hours inter-bank trading, the shekel-dollar exchange rate is up 0.37% against the dollar at NIS 3.730/$ and up 0.06% against the euro at 4.252/€.

This afternoon, the Bank of Israel set the shekel-dollar representative rate up 0.216% at NIS 3.716/$ compared with yesterday's rate and set the shekel-euro rate up 0.307% at 4.247/€.

The shekel is at its weakest against the dollar since February 2017.

Despite the steep falls in stock markets worldwide, including the US, the US Dollar Index (DXY) was up 0.15% today against the basket of selected currencies.

The DXY rose despite concern voiced last Friday by US Federal Reserve Board vice-chairperson Richard Clarida, deputy of chairperson Jerome Powell, about the state of the global economy. The DXY fell last week after Clarida said that there was evidence that the interest rate was approaching neutrality and the global economy was slowing.

Excellence Investment House chief economist Amir Kahanovich referred to the shekel's weakness in his weekly survey, writing, "The Bank of Israel bought foreign currency for years 'to offset the effects of gas' and prevent the shekel from strengthening and hampering exporters, until it suddenly announced last week that it would stop. What happened, however, was that not only did the shekel not surge; it fell against almost all of the world's leading currencies.

"The rationale behind the Bank of Israel's 'offsetting' foreign currency purchases is derived from lessons drawn from an event that took place 50 years ago in the Netherlands, referred to as the 'Dutch disease.' At that time, discovery of a gas field in the Netherlands caused the local currency, the guilder, to strongly appreciate, thereby causing non-competitive industries to degenerate, resulting in unemployment and loss of capacity for growth. After the gas revenues were used up and the guilder returned to its former level, it left the Dutch economy without sources of income. Since the 20th century, capital markets have become more sophisticated, and foreign currency traders know how to neutralize this effect, so assuming that the local market is sophisticated, the Bank of Israel's purchases were unnecessary during this entire period."

Published by Globes, Israel business news - en.globes.co.il - on November 20, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Shekel Photo: ASAP Creative
Shekel Photo: ASAP Creative
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