Concern about the escalation in the northern region, together with the strengthening of the dollar worldwide, led to a sharp depreciation of the shekel against the dollar and the euro. Since morning, the dollar has surged by about 1.5 percent to trade at NIS 3.71. The euro rose by a similar rate to NIS 4.0530. The leading indices on the Tel Aviv Stock Exchange are currently trading lower—the Tel Aviv 35 Index is down by 0.9%, the Tel Aviv 15 Index by 1%.
According to Modi Shafrir, market strategist at Bank Hapoalim's trading room, "The shekel weakened this week against the background of the combination of declines in equity markets abroad—the Nasdaq index declined by 3.2 percent last week, and futures contracts indicate a negative opening in the US, against the background of Israel's increased risk premium due to the fear of a significant escalation of the campaign in northern Israel, and also as a correction on the sharp appreciation of the shekel since the beginning of November."
The appointment ceremony of the Governor of the Bank of Israel for an additional five-year term // Photo: GPO
Ronen Menachem, Chief Market Economist, Mizrahi Tefahot, said in response to the shekel's depreciation: "In the past week, the dollar appreciated by 1 percent against the euro, among other things in light of a relatively strong employment report published on Friday that raised some question marks regarding upcoming interest rate cuts overseas. Together with the escalation in the north and Judea and Samaria, Israel's drag to the International Court of Justice in The Hague, and the consequences of lowering the interest rate here at the beginning of the month, this led to a depreciation of about 2 percent against the dollar, after a prolonged period of strengthening of the shekel. Against the euro, the shekel depreciated as well, albeit by a lower rate of about one percent, but still reflects domestic factors."
Menachem also notes in the context of the shekel that the Bank of Israel did not sell any foreign currency from its reserves in December, and its sales were measured in November as well. However, he said, "if and as long as the current depreciation of the shekel continues, it may have to sell again this month."
Menachem concludes by noting, "The Bank of Israel, as well as the credit rating agencies, are waiting for the 2024 budget, with the hope that it will reflect a budgetary framework and prioritization of expenditures, as well as guidance for lowering the debt and deficit to GDP ratios at the end of the war. In view of the long list of factors that will challenge the shekel at home and abroad in the near future, it is reasonable to assume that its volatility will be quite high, and it is not inconceivable that the current depreciation will continue for some time."
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