What is the strength of the Shekel?

The Israeli Shekel ended this week with an effective exchange rate approaching the 120 level (index 2015 = 100). Against the dollar, the exchange rate is well below the "psychological" threshold of 3.60; and against the euro it is trading at less than four shekels per euro. There is no doubt that the Israeli currency has been leading the world ranking of strongest currencies, rivalled only by the Japanese Yen and the Thai Baht. All other currencies, including the Swiss Franc, are lagging far behind.

But what forces are supporting the Shekel in the short term?

Maintaining the Israeli economy on a significant growth rate, even in a global slowdown phase, is an important determinant in the short term. At the beginning of the week, the Central Statistics Office certified that in Q1-2019, the annualised economic growth in Israel was five percent, the highest growth rate since Q3-2017. This growth is also taking place without creating pressure on the inflation side. Indeed, inflation is below the target set by the Central Bank, that envisages the continuation of an economic phase in Israel with very low interest rates (currently 0.25%).

What are the long-term strengths?

In the long run the forces supporting the strength of the Shekel are:

• A trade balance surplus that has always been positive throughout this century

  
  

  
  

• A high and increasing flow of incoming direct investments

  
  

  
  

• Central Bank currency reserves, as a percentage of the value of imports among the highest in the world (over 100% of annual imports).