Shekel stays below 3.6 per dollar

Israeli currency remains strong despite repeated BoI intervention to weaken the shekel.

Shekels money 370 (photo credit: Ariel Jerozolimski/Bloomberg)
Shekels money 370
(photo credit: Ariel Jerozolimski/Bloomberg)
The shekel remained strong on Tuesday even though the Bank of Israel bought dollars in a bid to weaken the shekel after the currency rallied to an 18- month high. It was the central bank’s second intervention in a month.
The shekel was little changed against the dollar and traded at 3.5876 as of 5:30 p.m. in Tel Aviv, versus 3.5884 on Monday, according to data compiled by Bloomberg.
The Bank of Israel bought an estimated $135 million and is “likely to buy more,” said Tom Gerszbejn, a currency trader at Union Bank of Israel Ltd. in Tel Aviv.
Rony Gitlin, head of spot trading for Bank Leumi Le- Israel, also confirmed the action.
“The surprise effect of intervention is not so much there anymore, and thus the central bank will need to make larger purchases to further weaken the currency,” Gitlin said. “We are still seeing foreign banks [on Tuesday] buying the shekel as the country’s economic fundamentals are supportive of appreciation.”
On April 8, the bank intervened in the foreign-exchange market for the first time in nearly two years, purchasing $100 million in the market after the shekel dipped below 3.6 to the dollar. On Monday, the shekel closed at 3.59, and it fell as far as 3.57 during trading on Tuesday.
A strong shekel negatively impacts Israel’s exporters by making their products more expensive on the world market. From January to March, exports (excluding diamonds, ships and aircraft) dropped at an annualized rate of 7.7 percent, which followed a drop of 14.2% in the previous three months, according to data the Central Bureau of Statistics released Tuesday.
The shekel has surged 8.4% over the past six months, making it the best performer among 31 major currencies tracked by Bloomberg. The base lending rate at 1.75% isn’t low enough to stop capital inflow affecting the exchange rate, Bank of Israel Governor Stanley Fischer said Monday. Speaking in a Knesset hearing on housing prices, he said the interest rate, the central bank’s primary policy tool, affects housing, inflation and the exchange rate differently.
“The interest rate in Israel, though relatively low, isn’t low enough to keep out the foreign investors, who want to take advantage of the fact that the interest in Israel is higher than the 1.5 percent abroad and thus revalues the exchange rate,” Fischer said.
FXCM Israel, a foreign-exchange company, said the dollar’s weakening around the world contributed to the problem of a strong shekel. Whereas the first intervention was designed to ward off speculators, it apparently failed to do so, meaning that future interventions would require greater levels of dollar purchases, it said.
“Despite the media coverage, the last intervention by the bank did not bring about a change in the dollar- shekel trade, and the downward trend remains intact,” FXCM Israel said.
In brighter economic news, the unemployment rate fell from 6.6% in February to 6.5% in March. The drop was accompanied by a decline in the labor participation rate from 64.1% to 63.5%, meaning that the lower unemployment figure may simply reflect fewer people looking for work.

Bloomberg contributed to this report.