Shekel slumps 1.6% against dollar after IDF chief hints at war with Iran

Rattled market sends exchange rate to NIS 3.73 per dollar for only third time since early 2017; Lapid blames budget passage, noting currency muscled up when he was in power

Illustrative: View of the Tel Aviv Stock Exchange, November 29, 2020. (Miriam Alster/Flash90)
Illustrative: View of the Tel Aviv Stock Exchange, November 29, 2020. (Miriam Alster/Flash90)

The shekel slipped against the dollar to its lowest level in years Wednesday as markets reacted a day after IDF Chief of Staff Herzi Halevi warned of looming war with Iran.

The rate of NIS 3.73 marked the furthest the currency has fallen against the dollar since mid-March 2020, when newly imposed pandemic restrictions briefly sent markets into a tailspin.

On Tuesday, Halevi warned of “possible negative developments on the horizon that could prompt” military action against Iran.

“Iran has made more progress in uranium enrichment than ever before. We are also closely examining other aspects of the [Iranians’] path to nuclear capability,” the IDF chief of staff said at a conference hosted by the Institute for Policy and Strategy of Reichman University in Herzliya.

The 1.6 percent jump accelerated a general downward trend for the shekel, which has been weakened since a hardline government took power in January with a legislative agenda that has sparked some worries from investors about the country remaining a liberal democracy.

On Tuesday night, the government passed its first budget, for 2023 and 2024, despite objections from economists that the billions of shekels in sectoral earmarks could harm the economy. The passage of the budget means that Prime Minister Benjamin Netanyahu’s government is expected to resume its push to overhaul the judiciary.

The shekel also dipped to NIS 4.02 per euro, down from NIS 3.99 the day before.

Over recent years, the shekel-dollar rate has hovered around NIS 3.3-3.5, falling as far as NIS 3.08 in November 2021. Wednesday marked only the third time since early 2017 the rate has hit NIS 3.7 or higher. In both instances, rates fell back to average ranges after several days or weeks.

Opposition leader MK Yair Lapid noted that the shekel gained against the dollar when the previous government, which he led with Naftali Bennet, passed its budget a year ago.

“This morning, the shekel crashed by 1.6%,” he tweeted. “The Israeli citizen market doesn’t believe the government and knows it is a terrible and damaging budget.”

Opposition leader Yair Lapid delivers a speech in the Knesset plenum during the budget debate, May 23, 2023 (Yonatan Sindel/Flash90)

It’s unclear how much of the market dip was a reaction to the budget passage, which was widely expected and likely largely baked into the exchange rate already.

A weaker shekel is expected to raise the price of imported goods and travel abroad while also pushing up prices at the gas pump.

Prime Minister Benjamin Netanyahu and Justice Minister Levin during a discussion and a vote on the state budget at Knesset in Jerusalem, May 23, 2023 (Yonatan Sindel/Flash90 )

Earlier this month, the International Monetary Fund said prolonged uncertainty over Israel’s judicial overhaul presents a “notable downside risk.”

Moody’s Investors Service said in April that the key trigger for lowering Israel’s credit rating outlook to “stable” from “positive” was concern that the planned changes to the country’s legal system would threaten the independence of the judiciary, which is crucial in particular in Israel. The agency kept the country’s actual credit rating intact at A1, citing “strong economic growth and improving fiscal strength.”

Senior executives and entrepreneurs from Israel’s business and tech community have taken to the streets in recent months to publicly voice their concern over the judicial overhaul and senior economists have repeatedly warned that the planned government moves will essentially neuter Israel’s democratic system of checks and balances and undermine the rule of law.

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