The political crisis affects our money: Bank of America warns this morning (Wednesday) against further weakening of the shekel, and estimates that if the devaluation continues, the Bank of Israel may intervene in the foreign exchange market because interest rate increases no longer affect the strengthening of the shekel.
Let's recall, yesterday the shekel weakened against all the leading currencies, the dollar and the euro by more than 2%.
This morning, the dollar traded at a level of 3.6470 against the shekel - similar to last night's closing rates.
The shekel weakens (illustration), photo: Reuters
"Political uncertainty and disagreements regarding the direction in which the country is moving are causing concern among local investors. Political noise does not usually affect Israeli assets or economic policy, but we believe that this time is different. The local sentiment has the potential to cause local investors to move their portfolios away from shekel assets The correlation of years between the shekel exchange rate and the American stock market has been broken," the bank's economists write to their clients.
"If the current sentiment continues, we expect a further devaluation of the shekel, and the Bank of Israel may intervene in the foreign exchange market because it is close to ending interest rate increases.
Interest rate hikes usually have little effect on the currency when the underlying factor behind the devaluation is security," it said.
Recall that yesterday the economists of another large bank, Citigroup, told Bloomberg that the shekel is expected to weaken by another 8% and their new target is NIS 3.95.
"Despite the Bank of Israel raising the interest rate by 0.5%, the shekel continues to remain under pressure from local political noise. It seems that the political situation will become more volatile in the coming weeks, when the legal reforms face a second reading in parliament."
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