After strengthening 8% against the dollar since the start of the year, the shekel is weakening today against the US currency and the euro. In afternoon inter-bank trading the shekel is 1.14% higher against the dollar at NIS 3.366/$ and is 1.02% higher against the euro at NIS 3.935/€.
The shekel is mainly being weakened by domestic matters. The deadlock in which the talks for the release of hostages, despite the optimism shown by US President Donald Trump and the growing fear of a constitutional crisis due to efforts to fire the Attorney General. The falls in futures contracts on Wall Street is also contributing to the shekel’s retreat.
The shekel strengthens as Wall Street indices strengthen, and vice versa. A forex trader told “Globes” this morning, “The bottom line is, there are many factors that influence and it is difficult to point out at this stage that one is more influential than the others. Another reason is the strengthening of the dollar in the world.
The DXY dollar index, which tracks the exchange rate of the US currency against the six most traded currencies, including the euro, yen and sterling, climbed 0.2% today, despite having lost about 10% since the beginning of the year, “The Wall Street Journal” notes, the sharpest decline in 50 years.
Investment banking firm Mor-Langerman cofounder Ori Mor says, “After a sharp strengthening of the shekel against the dollar, which should be remembered also occurred due to the general weakness of the dollar worldwide, the exchange rate has stabilized in the range between NIS 3.30/$ and NIS 3.35/$. This is probably a technical lull in the course of a long-term strengthening.
“We are seeing the return of foreign investors to the local market, and at the same time, a renewed increase in public confidence. Although Israel’s credit rating has not been officially upgraded, the markets have already effectively ‘priced’ in the upgrade, as can be seen in the narrowing of spreads. Looking ahead, it is likely that in the near term, due to the sharp and rapid appreciation experienced by the shekel, the exchange rate will remain within the current range until the security situation in the south, and especially the issue of the return of the hostages, becomes clearer.”
Bank Hapoalim said yesterday, “The yield on the 10-year bond is trading 25 basis points below the equivalent US government bond. If we take into account that Israel’s country risk premium for this term is still slightly higher than 100 basis points, then we can say that, technically at least, investors believe that the shekel still has a long way to go to strengthen. In practice, it is difficult to say that these gaps, which reach about 130 basis points per year, reflect a particular forecast for the strengthening of the currency, and they are probably also affected by the home bias of Israeli investors and concerns about fiscal conduct in the US.”
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International finance group BNP Paribas, today published a recommendation on a long dollar position against the shekel with a target of NIS 3.422/$. The reason: A decline in the Israeli stock market caused the fair value to rise, while the actual value did not follow suit making the shekel 1.9% “cheap” by the bank’s model.
HSBC also believes the dollar’s decline is temporary – the incessant dollar selling is starting to look like a bubble – and like any bubble, it too will eventually burst, the bank said. “Traders seem to be focused on the sharp decline in the dollar this year, and are tempted to extrapolate from it to future performance,” HSBC strategists led by Paul Mackel wrote in a research note. They observed that this is behavior characterizes a “bubble.” “It has not been long since we saw a strong dollar bubble, but now the opposite is happening: a kind of ‘anti-bubble,'” the strategists wrote. “There are ‘bubble’ characteristics, and this is a warning sign that the dollar’s bottom may be near.”
From a broader perspective, Mizrahi Tefahot Bank chief economist Ronen Menachem reminds us that one of the economic phenomena of 2025 is that the dollar is gradually losing its status as the world’s safe-haven currency. Menachem says, “The reason is President Trump’s tariff plan, assuming that it will primarily harm the US – inflation there will rise, in part because tariffs on imports of raw materials and production inputs to the US will also be tightened, and economic growth will be eroded.”
Menachem adds, “The tariffs that the US plans to launch in early August will ultimately harm the entire global economy. Reciprocal tariffs imposed by countries that are being targeted by the US will trigger additional tariffs from the US, which will open a destructive vicious circle that will not only be difficult to break – it could also deteriorate into military conflicts and be a trigger for global geopolitical escalation.”
“An economic slowdown,” claims Menachem, “could affect not only the US, but most of the countries that trade with it, including the Eurozone, which is caught in an incident with key countries that are struggling to grow, Asian countries (China, which has been facing difficulties for several years, Japan, which is struggling with rising inflation and the need to raise interest rates in its territory, and South Korea at the forefront), Latin American countries (including Brazil, the 11th largest economy in the world, which is dealing with an interest rate of 15%), and more.
“In my opinion, in such an extreme scenario, the broad economic damage will restore the dollar’s role as a safe haven currency; this is not only because the US also contains the solution to the difficulty and the president’s willingness to compromise, down the road, while all parties continue to strive for compromises but also because it is hard to believe that the currency of an economy on the order of $30 trillion, $10 trillion more than the next economy in line (China) and almost $13 trillion more than the entire Eurozone, which is also the most advanced and diverse economy in the world, will not regain primacy in the not-too-distant future.”
Published by Globes, Israel business news – en.globes.co.il – on July 14, 2025.
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