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Shekel continues gain on dollar, shrugging off shadow of elections

US currency drops to NIS NIS 3.2731 to the dollar Thursday afternoon in seventh day of declines, as dollar weakens globally amid expansionary policies, Bank Hapoalim says

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

Illustrative photo of Israeli shekels. (Sophie Gordon/Flash90)
Illustrative photo of Israeli shekels. (Sophie Gordon/Flash90)

The Israeli shekel continued to gain on the dollar even as the Knesset on Wednesday approved a preliminary bill that sets the stage for a fourth round of national elections in two years.

The shekel was trading at NIS 3.2731 to the dollar at 2:45 p.m. in Tel Aviv, approaching its low of NIS 3.23 to the dollar in July 2008.

On Wednesday the nation inched toward elections, as Defense Minister Benny Gantz and his Blue and White party broke from the coalition and voted in favor of dissolving the parliament.

“We see that the market is not perturbed about the possibility of another round of elections,” said Bank Hapoalim’s Irit Motzrafi Majar, an economist in the financial division, in a note to investors.

The shekel’s strength is mainly due to the fact that the dollar has declined against currencies globally, she said. The US currency has weakened to around $1.21 to the euro from $1.12 at the start of the year, she said.

“The weakening dollar in the world is partly a result of the very expansionary policies, both fiscal and monetary, pursued by the US Treasury and Fed. In this respect, the US election results even accelerated the weakening of the dollar in the world, under the assumption that Democrats will adopt even more expansive policies,” she wrote.

There are, however, additional factors contributing to the shekel’s strength, even as Israel faces political instability, a health 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 pandemic, 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.

The trend of a stronger shekel could be curbed by a change in the trend in global markets, said Motzrafi Majar. As vaccines against the coronavirus start rolling out globally, people may resume travel, she said, and that could also reduce appreciation pressures on the shekel, she said.

And even as the market seems to be shrugging off local political turmoil, a cut in the debt rating from ratings agencies could, for example, “change the momentum,” she wrote. S&P and Moody’s recently affirmed Israel’s credit ratings.

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