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A silver lining in the Fed’s fight against inflation

A strong dollar buys more shekels, creating investment opportunities in Israel, explains IsraTransfer CEO Doron Seitz.

For millions of people all over the world, the skyrocketing cost of living – which has seen the prices of basic necessities like food, energy, and utilities spike to record highs – is a top-of-mind concern. Residents of New York, London, and Tel Aviv are all feeling the squeeze in their day-to-day lives, with financial institutions scrambling to clamp down on inflation and attempt to stabilize the market.

The US Federal Reserve has taken action to stymie rising inflation, which raised the value of the dollar. While Americans are still suffering from what feels like a decrease in their buying power, the dollar has become more appealing than ever before as a currency on a worldwide scale.

As the global financial space continues to be rocked by major supply chain disruptions, the Russia-Ukraine conflict, and ongoing coronavirus lockdowns in China, the US dollar has emerged as a beacon of stability in the face of a volatile market atmosphere.

A stronger dollar has both benefits and drawbacks for Olim living in Israel, depending on factors such as whether they have assets in their countries of origin, if they are retired or still working, as well as if they’re planning to make major purchases, like buying a home, in the near future.

Here’s what Americans should know about a weaker shekel, a strong dollar, and how to make the most of the current exchange rates for living or investing in Israel.

Interest rates and inflation: What’s the connection?

One of the classic ways that banks and other financial institutions fight inflation is by increasing interest rates. Over the course of 2022, nearly all central banks throughout the world took this step and raised their interest rates, in the hopes that the move would slow growth and freeze trends towards rising prices.

But the Federal Reserve (the American central bank) increased interest rates much more aggressively when compared to banks in other countries. The move to significantly raise interest rates has strengthened the dollar, and that can be seen clearly when it comes to exchange rates with the Israeli shekel. 1 US dollar is now worth approximately 3.45 shekels, up from 3.10 shekels earlier this year – an almost 13% increase. This increase in the real-world value of the dollar over the shekel creates a scenario in which Americans may find that their money goes further in Israel than it does in the US, especially when it comes to major purchases like buying real estate or other investment opportunities.

Fluctuating currency rates and retirement: What a strong dollar means for retirees

For thousands of American Olim in Israel who are retired and living off their pension funds, the strengthening dollar is a welcome development. In Israel, the US dollar is worth more than in recent years, and retirees can enjoy getting more out of their money. American retirees living off of US pensions are now seeing an extra 400 or so shekels for each 1,000 dollars they transfer to their Israeli accounts or use for purchases in Israel – and those extra shekels quickly add up.

But for pensioners from the UK and Europe, the downfall of the pound and Euro can have a potentially devastating effect. With the currencies reaching historic lows, people on fixed incomes have seen their purchasing power significantly reduced.  1 pound is now worth approx. 4.15 shekels, a drop compared to previous years, has a significant impact on retirees.

A British pensioner who moved to Israel in 2008, when 1 pound was worth 8 shekels, has now seen their monthly purchasing power practically halved when it comes to on-the-ground expenses, through no fault of their own. And according to current market trends, relief – in the form of a market correction which sees the pound return to its previous exchange rate – doesn’t appear to be on the horizon.

The news for Americans in Israel isn’t all rosy, though. It’s become more expensive to send money out of Israel or make purchases in the US, thanks to the shekel being worth less when compared to the dollar.

If one is interested in buying a US property for their child, or offering them a down payment to make that happen, they’ll need to transfer more shekels – which will be converted into dollars – than would have been required last year.

A rising dollar and Israel’s hot real estate market: How can investors benefit?

The impact of the stronger dollar can have a negative or positive effect on buying power, depending on where one’s property is located and whether they’re primarily focused on Israeli investments or those abroad.

Right now, paying a mortgage on a US property is more expensive than it was in previous years. But those same dollars are going farther for a retiree living on a fixed income in Israel, and can now buy more in Israel than they could just a year ago.

The real-world impact of the shifting exchange rates towards a stronger dollar is clear. For example, a 3 million shekel property would have cost an American buyer roughly 968 thousand  US dollars in January 2022, whereas now it only costs about 872 thousand.

American Olim in Israel can now maximize their dollars for greater spending power during a time when it can benefit them the most. This is the ideal time for people with dollars on hand to purchase homes, vacation or rental properties, and to invest in Israeli assets that will cost them less in real terms than ever before.

Considering that inflation and market volatility make investing in the US more risky than in previous years, investing in Israeli real estate or companies might serve as a safer bet with lower initial investment and more steady returns.

However, it’s crucial to remember that while the dollar is up for now, it’s unclear when it will peak. While it appears to be holding strong in the time being, the nature of the market means that eventually, currency exchange rates might stabilize and the window for this golden opportunity might close.

IsraTransfer is a currency exchange platform offering low cost wire transfers to and from Israel, for individual and corporate users. To learn more about converting funds online via IsraTransfer and to find out the best way to convert and transfer your funds for purchases or investments in Israel, contact us here.

Click here to learn more about IsraTransfer


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