Shekel strengthens as investor fears over war escalation to the north ease

As Israel widens Gaza ground offensive against Hamas, market expects fighting will be limited to the south; last week shekel hit weakest level in 11 years

Sharon Wrobel is a tech reporter for The Times of Israel.

Dollars and shekels. (Olivier Fitoussi/Flash90)
Dollars and shekels. (Olivier Fitoussi/Flash90)

As Israel continued its war with the Hamas terror group, now in its 25th day, the shekel stemmed some of the heavy losses it suffered this month with investors becoming less pessimistic about an escalation in the north of the country and the eruption of a broader regional war.

The local currency gained as much as 1% against the US dollar earlier on Tuesday and was trading around NIS 4.02 in the afternoon in Tel Aviv. The shekel weakened to NIS 4.081 against the greenback on October 27, its lowest level in 11 years.

“The market appears to be less pessimistic about an escalation in the north — meaning that the war with the Hamas for now is expected to be relatively contained, with Israel’s fight with the terror group focused on its southwestern border, not the militias in the north,” IBI Investment House Ltd. chief economist Rafi Gozlan told The Times of Israel. “However, the foreign exchange market is still very nervous and investors are worried.”

Earlier this month, the shekel crossed the 4 per dollar threshold for the first time since 2015 as Israel declared war on Hamas after some 2,500 terrorists burst into the country from the Gaza Strip by land, sea, and air on October 7, murdering over 1,400 people, a majority of them civilians, including babies, children and the elderly.

Hamas and allied terrorist factions also dragged at least 243 hostages — including some 30 children — to Gaza.

In response, Israel vowed to eradicate the terror group that has ruled the Gaza Strip since 2007 and has been targeting all areas where the group operates, while also seeking to minimize civilian casualties.

This picture taken on October 31, 2023 from a position along the border with the Gaza Strip in southern Israel shows a salvo of rockets being fired from inside the Gaza Strip towards Israel amid ongoing battles between Israeli forces and the Hamas terror group. (Photo by Menahem KAHANA / AFP)

In recent days, Israel has been widening a ground offensive in Gaza and killing dozens of terrorists inside Gaza.

Gozlan noted that the other major factor helping to moderate sharp shekel weakness is the presence of the Bank of Israel in the foreign exchange market. In the first week of the war, the central bank announced a plan to sell up to $30 billion in foreign exchange to protect the local currency from collapse, smooth out volatility, and provide the necessary liquidity for the continued proper functioning of the markets.

The Tel Aviv Stock Exchange warned on Tuesday that since the outbreak of the war, Israeli private investors as well as foreign investors are reducing their exposure to the stock market. Meanwhile, those who bought local securities and increased their exposure were long-term institutional investors.

During the month of October, the TA-35 stock index of blue-chip companies and the benchmark TA-125 index plunged about 10% and 15%, respectively, and returned almost to the level they were at three years ago, according to data by the Tel Aviv bourse. There were moderate declines of about 2% to 4% in the leading stock exchanges in the US, Europe and Asia during the same period, the bourse said.

“The price drops in world markets this month were influenced by the fear of an energy crisis if the fighting in the Middle East expands,” the bourse said.

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