At NIS 3.16 per dollar, the shekel reaches the strongest level in history

The shekel is at its strongest level yet, with no signs of slowing down.

The Israeli currency traded at NIS 3.16 per dollar over the weekend and NIS 3.69 against the euro. It fell 1.25% against the dollar in the last week alone.

“In the last week, the shekel has strengthened 1.5% against the currency basket and 1.8% since the beginning of the month,” said Jonathan Katz, chief economist at Leader Capital Markets.

The trend is good for Israelis exchanging shekels for foreign currencies, but disastrous for exporters who are paid in dollars. The shekel had been trading around NIS 3.60 per dollar for several years before it started to strengthen rapidly last November.

The shekel briefly hit NIS 3.13 to the dollar on January 13 before the Bank of Israel announced plans to intervene in the market. However, this time, an intervention of this type does not seem to be expected.

A bank employee counts Israeli shekel notes for the camera at a bank branch in Tel Aviv (credit: REUTERS)

The increase is part of a long-term trend that stretches back years, explained Kobby Levy, head of the marketing strategy department at Leumi Capital Markets.

“The shekel has been strengthening for years due to a current account surplus stemming from long-term growth in the service sector, and especially high-tech exports, which have flourished in recent years and more since the crisis of the crown, “he added. Levy said.

“The flourishing of the high-tech sector is also one of the reasons for the significant increase in direct and financial investments in Israel, including through the acquisition of local companies, as well as by raising capital and IPOs from the sector. high-tech. “, he added.

In January, the Bank of Israel intervened in the market, announcing that it would buy up to $ 30 billion in dollars during 2021 to weaken the shekel. It has since bought even more than that, although Levi said the bank’s goal is to slow the strengthening of the shekel, not reverse the trend.

Katz agreed. “The Bank of Israel has indicated that a rapid recovery in economic activity supports less market intervention,” he said. “This is an inflation factor that few inflation forecasters take into account.”

Expectations that Israel will raise its benchmark interest rate from a record low of 0.1% in the coming months are strengthening the bond market, which also affects the shekel.

    The headquarters of the BANK of Israel in Jerusalem.  (credit: MARC ISRAEL SELLEM) The headquarters of the BANK of Israel in Jerusalem. (credit: MARC ISRAEL SELLEM)

The strong shekel is a particular pain point for Israel’s high-tech industry, which mainly sells products abroad. “Startups and large companies depend more on the dollar than on the shekel,” said Eytan Pardo-Roques, operations manager and head of business development at Sarona Partners. “Those companies are the most powerful economic engine in the State of Israel. One of the biggest sources of taxes in the State of Israel comes from high-tech companies and startups, and in case these companies get into trouble, the whole country will be in trouble. “

“The continued fall of the dollar will affect the growth rate and profitability of companies in the high-tech industry, because most of the industry’s income is based on foreign exchange and its expenses are in shekels,” added Dotan Lazar, CEO and co-founder of LSports. “In the short term, the fall in the dollar exchange rate could slow the rise in wages of high-tech workers and slightly affect the growth rate and income of companies. Growth in most companies is slow. will slow down, which may cause some companies to raise prices for customers or cut spending in shekel, which would hurt wages and conditions in the industry. “

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