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(photo credit: Bloomberg chart)
The shekel is expected to strengthen further, rising even above the four-and-a-half month high reached on Monday as the dollar continues to weaken around the world on expectations of a slowdown in the US economy.
"The strength of the shekel against the dollar is a result of the surge in the Tel Aviv 25 index, which rose at a rate of 8 percent over the past week and as a result of the weakness of the dollar around the world driven by expectations of further interest rate cuts by the US Federal Reserve," said Assaf Heftol, foreign exchange proprietary trading manager, at the Xpert Financial Group. "For the moment, foreign investors prefer to buy stocks and sell dollars."
On Monday, the shekel rose more than 1% against the dollar from Sunday's 4.01 to 3.98, its highest level since May.
"Calming voices in the Israeli-Syrian crisis and Israel's investment upgrade to developed status [by the FTSE] also contributed to the appreciation of the shekel to its current level," said Erez Britt, CEO of Tandem Capital. "As the dollar around the world continues to weaken, the shekel will continue to gain. Only a local crisis or an unexpected interest rate hike in Israel could change the direction."
Furthermore, the shekel gained as the dollar on Monday reached a record low versus the euro for an eighth day.
"The dollar started to weaken around the world over the past weeks following the US Fed's decision to cut interest rates by half a percentage point and concerns over the repercussions of the US subprime mortgage crisis," said Britt. "The major currencies rose to highs. The euro reached a level of 1.42 against the dollar."
The last time the dollar dropped below the psychological barrier of NIS 4 against the shekel was at the beginning of May, and then continued to fall to NIS 3.932. The US currency recovered to NIS 4.34 by the middle of July. Since the start of the year, the dollar has dropped over 5% against the shekel.
"The psychological barrier of NIS 4 has been broken and many financial bodies are now closing their long positions - an element that is expected to lead to further weakening of the dollar," said Heftol. "We expect the dollar to drop to the next level of 3.9 against the shekel in the near future." Meanwhile, Benny Menashe, head of the dealing room at Finotec, forecasted that the dollar was likely to drop below 3.90 against the shekel.
"Indications of a recession in the US economy and strong macroeconomic fundamentals in Israel support investors' confidence in the local economy, which in turn will strengthen the shekel against the dollar to a level below 3.9 over the next month before Bank of Israel Governor Stanley Fischer might consider lowering interest rates to stabilize the exchange rate," Menashe said.