Despite the war, the strengthening trend of the shekel continues today: the dollar declined by 1.4 percent against the shekel today and is now trading at NIS 3.81. This is a lower level than before the war, when the dollar was trading for NIS 3.86. The euro declined slightly against the shekel to NIS 4.1260.
The weakening trend of the dollar today is mainly explained by the weakening of the dollar worldwide, following better-than-expected inflation data in the US.
Annual inflation in the US moderated to 3.2 percent in October, boosting investors' expectations that the period of high interest rates is drawing to a close and that the Federal Reserve will begin cutting interest rates on the dollar in the early second quarter of 2024.
Since the beginning of the war, the dollar has surged against the shekel, reaching its peak of almost NIS 4.10 a week and a half ago, and has been on a downward trend ever since.
The assumption that the war will be concentrated in the south, together with the weakening of the dollar worldwide and the Bank of Israel's foreign exchange sales of more than $8 billion in just three weeks, led to a sharp and rapid strengthening of the shekel.
Expected moderation of inflation in Israel as well
Inflation data in Israel will be published tomorrow (Wednesday), and the interest rate market expects that annual inflation will continue to decline. The Consumer Price Index for October is expected to increase by 0.4–0.5 percent, leading to a slight moderation in the annual inflation rate to 3.7 percent, from 3.8 percent last month.
However, despite the expected decline in inflation in Israel as well, a reduction in the interest rate is not on the horizon for now. According to Bank Hapoalim's economists, "As long as the war continues, and with it the uncertainty regarding the budget, the interest rate will remain unchanged. At this point in time, the Bank of Israel prefers specific assistance to small businesses that were harmed by the war, by subsidizing sources of financing for loans to banks."
The Governor of the Bank of Israel made it clear in his recent speeches that the top priority today is calming the markets and their stability, while lowering the shekel interest rate will increase the pressure to depreciate the shekel.
The stock exchange is optimistic
Trading on the Tel Aviv Stock Exchange increased sharply today: the Tel Aviv 35 Index increased by 1.9 percent and the Tel Aviv 125 Index jumped by 2.1 percent.
Following the encouraging inflation data from the US, the Wall Street Stock Exchange also opened sharply higher, with the Nasdaq Composite jumping 1.9% and the S&P500 rising 1.7%.
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