Why is the Israeli Shekel Strengthening So Much Against Euro and Dollar

A day after the collapse of the world’s leading currencies against the shekel, which led to new lows and led to the intervention of the Bank of Israel, which purchased hundreds of millions of dollars, the shekel continues to show resilience. The Bank of Israel is looking for creative solutions to stop the continued collapse, which is already affecting exports, imports and inflation.

Last night, the representative rate of the dollar was set at NIS 3,074, the lowest since November 1995, when it fell to 3.430 during trading. The representative exchange rate of the euro recorded a new low of NIS 3.4760, a distance of only six cents from the all-time low. This is after falling earlier to 3.44430.

It was time to exacerbate the drama in the foreign exchange market. After 17:00, the Bank of Israel began to inject large volumes of dollars into the foreign exchange market, after setting the representative rate and during continuous trading, and immediately caused the rates to rise by a few pennies. The dollar traded back at NIS 3.07 and the euro rose to NIS 3.48. However, even these gates are still very low and constitute the lowest gates in decades.
The intervention of the central bank, with no choice, came only after foreign exchange rates had already fallen to new lows, while in the meantime, it turns out, the Bank of Israel is looking for creative solutions to stop the collapse in the coming days.

The government has not yet initiated any assistance programs for exporters, but the Minister of Finance, Avigdor Lieberman, is already preparing a first assistance program, although not significant so far, for the benefit of exporters – providing large discounts on property tax payments. Such a move will not save the dollar and euro exchange rates.

Why does the fall in foreign exchange rates actually occur?
There are several reasons for this. Due to the production and export of natural gas, billions of dollars are entering Israel recently. Investors pour large sums of money into Israel, in foreign currency, which is good for the economy, but not for the shekel, which is getting stronger. Most Israelis do not travel abroad after the end of the big holiday and holidays and hardly buy dollars, and at the same time the euro exchange rate in the world is very weak in Israel as well.
And are there reasons why the shekel is strengthening so much?
The Israeli economy has recovered quickly from most of the world from the corona crisis and presents excellent figures of high growth and high private consumption, which also produces high tax collection that reduces the huge deficit created by the previous government during the corona crisis. Unemployment is falling in the meantime, although its rate is still high (7%). The transfer of the budget after two years without it transmits to the world economic stability, at a time when the corona crisis in Israel has receded – mainly due to the high rate of the vaccinated population – while Europe is plagued by a particularly severe corona wave.

And why is strong shekel bad for manufacturers and exporters?
The matter is very simple. For an export of $ 100, the manufacturer and exporter received NIS 340 last year and now NIS 307. For 100 euros they received NIS 380 and now NIS 348. However, they make all their expenses in shekels – wage payments, property taxes, electricity, water and every other expense in the country.

Are prices of imported products expected to fall now?
It is clear that importers pay less dollars and euros when they import cars, refrigerators, washing machines and computers into the country. However, unlike price increases – when foreign exchange rates rise – they are in no hurry to react and lower prices. It is therefore advisable to bargain at this time, when purchasing a car or refrigerator. Competition in the economy is large and discounts are likely to be given.

And what will be discounted immediately?
Everything that is denominated in a foreign currency, such as the products we order from abroad through websites, even if the import is from China and not just from the dollar and euro countries. “Of course, shopping, including those denominated in dollars at duty-free in the country.

So should you buy dollars or euros now?
We all know to whom the prophecy was given. It is not certain that a rate of three shekels is the “floor” of the dollar, and it is not entirely certain that the euro will not fall below its lowest rate ever in the coming days – NIS 3.41. Therefore, it is advisable to stock up on foreign currency only in preparation for the upcoming trip abroad, but not to gamble. Exacerbation of the corona crisis in the US or Europe may further weaken the currencies there. On the other hand, the Bank of Israel’s intervention in foreign exchange trading or financial moves abroad, such as raising interest rates on the dollar, can strengthen the various currencies. In any case, the price right now is quite attractive for purchasing the dollars and euros you will need abroad.

Reviewer overview

Why is the Shekel Strengthening So Much - /10

Summary

A day after the collapse of the world's leading currencies against the shekel, which led to new lows and led to the intervention of the Bank of Israel, which purchased hundreds of millions of dollars

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