The Israeli shekel, which has fallen to an eight-year low, is unlikely to significantly depreciate further, according to strategists at Goldman Sachs Group Inc.
(Bloomberg) — The Israeli shekel, which has fallen to an eight-year low, is unlikely to significantly depreciate further, according to strategists at Goldman Sachs Group Inc.
They pointed to the Bank of Israel’s unprecedented measures to contain the fallout and said the balance of payments, a broad measure of a country’s trade in goods and services, is “much healthier” than past episodes of conflict.
The currency slipped 0.3% to 3.9895 against the dollar on Monday, marking a sixth day of declines. The shekel has lost more than 3% since the war began.
The nation’s dollar bonds extended losses, with the yield on the security due 2030 jumping 17 basis points to 5.9%. Meanwhile, stocks rebounded, with the benchmark TA-35 Index climbing 1.4% after falling into a bear market on Sunday.
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In the view of Goldman strategists, Israel has plenty of reserves to cushion the currency. In previous clashes in the region, there were also “significant financial inflows from abroad,” in the form of aid and other financial transfers that helped support the shekel, they added.
The moves in the Israeli exchange rate has been “characterized by very low volatility” around the level of 3.95, suggesting that the central bank has been active selling dollars, according to Bank Hapoalim.
“The prevailing assessment in the market is that foreigners were involved in the sale of shekels,” said analysts at the Tel Aviv-based bank.
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Since the central bank unveiled its intervention plan a week ago, the shekel’s one-month implied volatility has fallen by the most among 29 major currencies tracked by Bloomberg. Options traders see a 40% probability of the shekel hitting 4.1 against the dollar in a month, a level that the central bank had appeared to defend in 2012.
“The strong financial strength of the economy enabled the Bank of Israel to create a kind of firewall that succeeded in separating (in part) the negative impact on the real economy from the financial markets,” Bank Hapoalim said.
–With assistance from Paul Abelsky and Farah Elbahrawy.
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