A ceasefire announced by President Donald Trump last month — halting a brief war between Israel and Iran — drove a rally in the shekel. The currency was last week at its strongest against the dollar in three years, erasing drops following Prime Minister Benjamin Netanyahu’s judicial overhaul attempts and Hamas’ Oct. 7 attacks which triggered a 21-month war.
The central bank said earlier on Monday it sold $273 million in June to defend the local currency. It was the first time in over 18 months Israel activated a post-Oct.7 intervention plan aimed at “mitigating fluctuations in the shekel exchange rate.”Bank of Israel Governor Amir Yaron said last month that future rate decisions will be guided by the balance between the shekel’s appreciation — expected to reduce inflationary pressures — and labor shortages caused by the number of workers serving as reservists in the military — risking an upside to prices. Currently at 3.1%, Israel’s annual inflation rate is above the official target range of 1% to 3%.
The military campaign in Iran, which also saw the US join strikes on Iranian nuclear sites, improves Israel’s long-term economic prospects, especially if a ceasefire in Gaza is soon forthcoming, Yaron added. Netanyahu is due to meet the US president in Washington on Monday and a path to end the war with Hamas, a group designated as terrorist by the US and many other countries, will be one of the major discussion topics.
Israel’s five-year credit default swap spreads, a measure of confidence in the country’s ability to service its debt, have fallen from 123 basis points last month to 84 basis points last week. The Israeli currency gained 6.4% against the US dollar in the six weeks since the last rate decision, becoming the top performer in a basket of expanded majors tracked by Bloomberg.
The Tel Aviv 35 benchmark stock index was up 21.3% in the first half of the year against 3% for the S&P 500 index.
