Shekel weaker amid hostage release uncertainties

After a week in which the Israeli currency has appreciated against the world’s major currencies, the shekel is weakening today. In early afternoon inter-bank trading the shekel – dollar exchange rate is up 0.82% at NIS 3.591/$ and the shekel – euro rate is up 0.68% at NIS 3.705/€.

Yesterday the Bank of Israel set the representative shekel-dollar rate up 0.338% from Friday, at NIS 3.562/$, and the representative shekel-euro rate was set 0.217% lower at NIS 3.680/€.

The sharp depreciation in the shekel comes in the wake of Hamas’ announcement yesterday that Israel has violated the ceasefire, and the release of hostages has been postponed until further notice. Hamas later tempered its statement, stressing that “the announcement is a warning step.” In the hours that followed, the shekel weakened towards NIS 3.58/$ but the weakening has moderated somewhat today.

“This is a correction, the shekel will continue to strengthen”

Bank Hapoalim chief financial markets strategist Modi Shafrir tells Globes that this change is entirely due to geopolitical influences: “Starting with Hamas’ announcement yesterday, we saw the shekel weaken, and we see the continuation of this this morning as well.” However, he insists that the shekel is still very strong and as of the beginning of the week, the shekel had strengthened by more than 7.3% since November 2023, just after the start of the war. Shafrir sees the current depreciation of the shekel as something that is part of the overall picture in the market: “We see a certain correction as soon as there is a deterioration in stability in the security sector, it is logical.”

More Investment House chief investment manager Yotav Costica says that the latest weakening of the shekel is marginal. “The market sees the latest news as attempts at negotiations, everyone is flexing their muscles, but in the end, the hostage release on Saturday will happen. For the foreign exchange market, the next release is much more important, because without the release of the hostages, the war in the south will return to full force and the risk will skyrocket.”

Costica adds that without an event that will shake up the geopolitical situation, the shekel will strengthen again. “Ultimately, as the calm continues, we will see the deficit decrease, the risk premium moderate and eventually the interest rate fall. These are elements that are good for the market and an expectation of better economic conditions and the shekel will strengthen.”

It seems that even during the ceasefire, which is admittedly fragile, the shekel continues to fluctuate between a wide range. Recently, several economists have raised concerns, including a Bank of Israel model, which indicates a very strong shekel if not for the effects of the war. Estimates are that the shekel could reach NIS 3.4/$ and even strengthen beyond that.

Published by Globes, Israel business news – en.globes.co.il – on February 11, 2025.