The shekel weakened sharply against the US dollar at the start of trading today. The Shekel dollar exchange rate is currently up 1.76% compared to the representative rate set last Thursday at 3.2736.
At least two factors cause the shekel to weaken. Following the resolute stance on combating inflation taken by the President of the US Federal Reserve, Jerome Powell, expectations have risen of a 0.5% increase in US interest rates in May and of a similar increase at each of the following meetings in Federal Open Market Committee, in June and July. The expectation of steep interest rate rises in the US, while interest rates in Israel rise more gradually, implies a rising interest rate gap between the dollar and the shekel, leading to a rising exchange rate.
The second factor contributing to the weakening of the shekel this morning is the recent decline in US equities. The shekel-dollar exchange rate is strongly correlated with the US stock market through the hedging activities of Israeli financial institutions exposed to this market. When stocks fall in the United States, institutions have to buy dollars and sell shekels to balance their currency positions.
Published by Globes, Israel business news – en.globes.co.il – April 25, 2022.
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