The Israeli shekel rose to its strongest level against the US dollar in 12 years on Tuesday even as the country inched closer to an election and a third lockdown loomed, and the dollar weakened globally.
The exchange rate fell to NIS 3.2265 to the dollar on Tuesday, the strongest the currency has been against the US greenback since July 10, 2008, when the rate was NIS 3.2084 on the dollar, Bank Leumi Le-Israel Ltd. said. The rise of the shekel reportedly prompted the central bank to intervene in the market on Tuesday to prop up the dollar. The shekel was trading at NIS 3.2390/$ at 3:03 p.m. in Tel Aviv.
Kobby Levi, the head of markets strategy at Leumi, said that the main cause of the shekel’s rise was the global weakening of the dollar.
The dollar rose in recent days against other currencies after the virus mutation was discovered in the UK, Levi said, but is now correcting its gains.
“The dollar has corrected slightly in recent hours, and at the same time futures on major US stock indices and major European stock exchanges have risen,” he said in an emailed statement.
“This raises expectations for further fiscal expansion,” Levi said, which, if approved, is expected to support a further weakening of the dollar.
Beyond that, Levi said, trading is traditionally volatile at the end of the year as large local companies make currency adjustments.
The shekel has gained 6.25% against the dollar this year, as the US currency has weakened globally. The Israeli currency’s strength comes even as the nation faces a fourth election within two years, a pandemic and the biggest economic crisis in its history. Prime Minister Benjamin Netanyahu is being tried for corruption in three cases and the government has been rendered impotent by a dysfunctional coalition.
Booming foreign equity markets are causing the shekel to strengthen against most currencies, as investors hedge their investments in foreign stock markets by selling foreign currency reserves.
In addition, Israelis are mostly eschewing travel because of the coronavirus, which has largely grounded flights, leaving at home some $3 billion worth of foreign currencies they normally spend abroad.
The shekel is also buoyed by the strong fundamentals of the Israeli economy. The nation has a big surplus in the balance of payments current account because its exports exceed imports, mainly due to its strong high-tech industry. Natural gas production from its massive fields since 2013 has also helped to cut back on energy imports, and savings by households in Israel, in savings and pension plans, are high. All of this impacts the nation’s current account, giving it a surplus.
Earlier this month central bank governor Amir Yaron said the Bank of Israel plans to continue buying foreign currency in 2021 to curb the strength of the shekel, as its appreciation hurts exports and could hinder the economy’s recovery from the blow dealt it by the coronavirus pandemic.
The Bank of Israel has bought, from the start of the year until November, some $17 billion worth of foreign currency, he said, in a bid to curb the rate of appreciation.