Shekel keeps going from strength to strength

The shekel strengthened considerably against the major currencies today, following the signing of the cease fire agreement for the release of Israeli hostages by Hamas. The representative shekel-US dollar exchange rate was set 1.13% lower, at NIS 3.2420/$, and the representative shekel-euro rate was set 1.32% lower, at NIS 3.7635/€. But even before the agreement with Hamas was signed, the shekel won the title of “strongest currency” over the past week. According to Bloomberg, the shekel was the best performing currency among thirty main currencies, while according to analysis by the Bank of Israel, against a weighted average of a basket of 29 currencies of Israel’s main trading partners (“the nominal effective exchange rate”), the shekel is at its strongest ever. How far could it go?

Tamir Hershkovitz. deputy CEO and head of the Investments Division at Ayalon Insurance, estimates that, in the coming year, the shekel will reach NIS 3.1 to the US dollar, and that within two years the exchange rate will fall below NIS 3/$. “If we look at the past twenty years, the trendline is very clear,” he explains. “Twenty years ago, the shekel-dollar rate stood at NIS 4.7/$. Since then the trend of a strengthening shekel has been very clear.”

What does the trend stem from? One factor is currency hedging. Bank Hapoalim chief market strategist Modi Shafrir: “Because of the need of investment institutions to hedge exchange rate risk on foreign investment, shekel exchange rates are coordinated with equities indices overseas. If these rise, then the shekel strengthens.”

The story does not end there though. “Alongside the financial explanations are explanations to do with the real economy,” says Hershkovitz. “There is massive investment by local and foreign investors at both the financial and real levels in the local economy.” “We have a structural surplus on the current account that is even expected to rise if the war ends,” says Shafrir, “and there are direct investments by foreign entities in Israel on a very large scale, chiefly in the technology sector.”

In the background is Isreal’s geopolitical position. “We have here a major geopolitical event,” says Hershkovitz, “with far-reaching changes for Israel vis-à-vis Iran, Lebanon, Syria, and perhaps later on Saud Arabia as well. In the long term, we have seen that the trend of a strengthening shekel continued even when we were at the height of the fighting, when the end of the war seemed a long way off.

“Last night’s agreement paves the way to a new Middle East, and in the new world order, Israel has clear technological and military superiority over the countries of the region, and the alliance with the US is stronger than ever. We see an end to the boycotts and sanctions against Israel, and a high chance of a normalization agreement with Saudi Arabia. We expect the stock market to continue rising. The next rally will be in bonds, which will benefit from a cut in interest rates within the next few months.”

Published by Globes, Israel business news – en.globes.co.il – on October 9, 2025.

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