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Shekel hits yet another 25-year high against the dollar

Israeli currency’s strength imperils local manufacturers, as pandemic continues to strain global supply chains

Israeli shekels, Jerusalem. (Orel Cohen/ FLASH90)
Israeli shekels, Jerusalem. (Orel Cohen/ FLASH90)

The shekel-to-dollar exchange rate hit a new 25-year-high on Monday, with $1 briefly fetching just NIS 3.08 before closing for the day around NIS 3.11.

The shekel has been gaining in strength against major currencies like the dollar and euro, thanks in large part to high levels of foreign direct investment and the strength of the tech sector.

While a stronger currency allows for cheaper imports, it can also hurt exporters by making their goods more expensive for foreign customers.

The new record high came just days after the previous record high was briefly reached, before receding.

The shekel traded at around 3.6 to the dollar for several years, but more recently was in the 3.2 – 3.3 range.

The Globes business daily reported that the Bank of Israel intervened on Tuesday with a purchase of foreign currency to slow the shekel’s rise. The bank declined to comment.

The currency’s strength is due to factors including Israel’s strong economy, foreign investments in Israeli companies moving capital into the country, Bank of Israel monetary policies, and strong global equities markets, which can cause Israeli financial institutions to sell foreign currency as their exposure rises.

The strong shekel is beneficial for Israelis making purchases abroad or exchanging currency, but harms exporters, who are paid in foreign currencies, and pay expenses in shekels, sparking fears of production line closures and layoffs. The pandemic has also wreaked havoc on global supply chains, driving up shipping costs and other expenses.

The shekel’s climb could also hurt some companies’ competitive edge with foreign firms. The Manufacturers Association called an emergency meeting last week to discuss the situation for exporters.

Tech firms that receive revenue in dollars could also be harmed by the exchange rate.

The Bank of Israel said last month that it plans to reduce its bond purchasing and tighten monetary policy. The bank is scheduled to meet on November 22 to discuss policy.

In January, the bank said it planned to buy $30 billion in foreign currency to stem the shekel’s rise in 2021, and later said it was not limited to that amount.

Luke Tress contributed to this report.

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