Is the low in the shekel-dollar exchange rate an opportunity to buy US dollars, or dollar-denominated assets, cheaply, or are we on the brink of a new era in which a shekel-dollar rate below NIS 3/$ is here to stay?
In the past year, Israeli investors exposed to the dollar could only look on in dismay as the declining shekel-dollar exchange rate wiped out their returns. A 20% fall in the rate ate up most of the gains on equity investments, and put investments in bonds into loss-making territory.
For example, the many Israelis who invested in funds tracking the S&P 500 Index saw a return of over 30% in dollar terms shrink to less than 10% when translated to shekels. Someone who invested NIS 100,000 shekels in the S&P 500 a year ago made a gain of just NIS 9,000 instead of NIS 32,000. In the six months to the end of March, NIS 5 billion exited the S&P 500 investment tracks of the provident and pension funds, or 7% of the money managed on those tracks.
Many factors lie behind the exceptional strength of the shekel against the US dollar: a fall in Israel’s risk premium, a current account surplus, large movements of capital arising from sales of foreign currency by Israeli financial institutions and deals in technology companies resulting in large quantities of dollars flowing to Israel.
The sale of cybersecurity company Wiz to Google for $32 billion is sufficient by itself to move the exchange rate. Add to that all the hopes of a “new Middle East”, and the weakness of the dollar worldwide, and you get a situation in which the shekel has been one of the strongest currencies in the world against the dollar this year.
Officially, the shekel-dollar exchange rate fell below NIS 3/$ in 1995, but at that time the state had a policy of intervention in the exchange rate, so that in fact last week was the first time that market forces brought the shekel to such a peak.
So is now the time to buy dollars? The experts are divided on that question. A source in one financial institution to whom we spoke about the possibility of physically buying dollars given the low exchange rate responded: “For anyone who has upcoming expenses in dollars, for example an overseas vacation in the next few months, it makes sense to buy foreign currency. But over time a holding like that brings no return, and its value is eroded even in dollar terms, and so it isn’t worthwhile in my view.”
Saar Weintraub, deputy CIO at Altshuler Shaham, says, “It appears as though this is a cheap entry point for an unhedged dollar-denominated investment, but in the long term the shekel will continue to be strong. The flow of foreign currency will continue to be inward towards Israel, and the three shekels to the dollar level that we came down from last week is just a number and not a particularly important level.
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“The new level is not a one-time opportunity, but just another level. Anyone who up to now has hedged, for example, 80% of his investment portfolio, should continue hedging even at the new level, and not suddenly reduce his hedging percentage because the shekel ‘has strengthened enough.’” In other words, people should stick to their investment policy.
Another source in a financial institution with whom we spoke says that anyone who nevertheless wants to buy dollars is not recommended simply to convert cash. “That’s even less good than investing in dollar bonds, for example, where at least there’s a positive return. If you convert shekels to cash dollars, you don’t benefit from it, and you’re just exposed to fluctuations.”
There are also those who believe that the current low in the shekel-dollar exchange rate is just the beginning. Tamir Shapira, CEO of Ayalim Mutual Funds, says that the rate might partially correct its decline, but that in the long run the shekel “will continue to shine.” “The strength and resilience of the Israeli economy are very great. There is money flowing inwards because of the natural gas, exports of weapons systems, and of course the high-tech sector and company exits. These are huge sums. The institutions are also forced to sell foreign currency because of the rises in overseas stock markets.
“It could be that because some isolated event in the war or in negotiations we’ll see the dollar strengthen speculatively, but as an Israeli investor for the long term I wouldn’t buy it.”
“Overseas investment has become more attractive”
Opposing this, there are those who believe that this point is an opportunity to expand dollar exposure in the investment portfolio, but mainly through the stock market. “Overseas investment has become more attractive,” says Yaron Friedman, head of investment research at Bank Leumi. “We’re not talking now about taking your pension and exposing it completely to the S&P 500. Absolutely not. We are talking about changing the tilt of the portfolio. It’s still worthwhile having exposure to Israel, because to the extent that there’s a sustainable calm in the security situation, that will give a push to the local market. But at the price and exchange rate levels that have come about, investment in global markets has become more profitable.
“Exposure via the S&P 500 is the easiest way. It saves the headache of being selective,” Friedman says. He does add that it’s worthwhile for investors to take an interest in overseas stock markets at the sector level, pointing to aviation (“airlines have suffered in recent months and will benefit from lower oil prices”) and software companies (“they’ve fallen a long way, and not necessarily justifiably”)
What about investment in fixed-rate dollar instruments, such as US Treasury bonds or corporate bonds, or dollar money market funds? The experts we spoke to were unanimously opposed to this idea. Leumi’s Friedman explains: “A stock makes the dollar-shekel return in a few hours, but if you take ten-year US Treasury bonds the annual return to redemption is 4.3%, and currency fluctuations are much more significant than the return on the bond.”
Shapira also warns that buying dollar-denominated fixed-rate investments can hurt returns severely. “In fixed-rate instruments it’s a catastrophe. You can lose the entire return. If, for example, we assume a return of 5% on a dollar bond, and the shekel-dollar rate falls the way we’ve just seen, dipping 3% just in the past week, that’s volatility that isn’t appropriate for fixed-rate investments.”
A glance at the mutual funds sector on the Tel Aviv Stock Exchange brings home the fact that what looks like a conservative investment in normal times has led to considerable damage in the past year. Dollar-denominated money market funds (funds that invest in short term fixed-rate instruments such as short term bank deposits, bonds, or cash) have posted negative returns of about 15% in the past year, while shekel-denominated money market funds have yielded a positive return of over 4%.
Investment in mutual funds that buy dollar-denominated corporate bonds have also not escaped the consequences of the fall in the shekel-dollar rate. On the Tel Aviv Stock Exchange there are sixteen such funds (with a history of a year), and, excluding one of them, they have fallen by an average of 11% in the past year. This is as opposed to a 6% average positive return for mutual funds investing in shekel-denominated bonds of Israeli companies.
And what about those who already have a substantial dollar component in their portfolios? How can they protect their assets against future drops in the exchange rate? One way is through exchange rate neutralized funds, which cost more but facilitate exposure to overseas assets with the exchange rate risk hedged.
Another is through forward foreign exchange deals that fix the amount of shekels that will be received for a given amount of dollars at a future date. Then there is gold, which is negatively correlated with the US dollar and can be a safe haven in turbulent times.
Published by Globes, Israel business news – en.globes.co.il – on April 20, 2026.
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