As the hostilities between Israel and Hamas continue, the Israeli national currency, the shekel (ILS), has sunk to its lowest level against the United States dollar (USD) in over eight years amid investor uncertainty regarding the potential financial cost of a long war.
Indeed, the USD/ILS trading pair had recently crossed the threshold of 4 per dollar for the first time since March 2015, as Israel entered its 10th day of armed conflict with Hamas, with the shekel trading at 4.01823 to the US dollar, according to the information retrieved on October 17.
Specifically, back on March 20, 2015, the shekel was trading at 4.057 amid the dollar’s advance that brought it to near-parity with the euro (EUR). Since then, the Israeli fiat currency neared this level again (at 3.88598) only once – in March 2020, at the beginning of the Covid-19 pandemic.
Decline persists
Meanwhile, the continuous decline of the shekel has persevered despite the Bank of Israel announcing last week a plan to try and mitigate the currency’s volatility by selling $30 billion in foreign currency in the open market in what would be the first-ever sale of foreign exchange for the country’s central bank.
One of the sources of the ongoing pressure appears to be the concerns regarding Israel’s mass mobilization for the war against Hamas but also about the possibility of the conflict spreading and dragging in other nations, such as Iran, Lebanon, or Syria.
Signs of hope
As Nicholas Farr, emerging Europe economist at Capital Economics, explained:
“Israel’s economy has proven resilient to conflicts in the past and been able to adapt over time, which has often limited the direct impact on the economy. But a much larger and longer-lasting war this time risks larger spillovers to the labor market and economy.”
In Farr’s view, Israel’s central bank currently has $200 billion in foreign reserves, which should help it support the shekel if selling pressure intensifies even further and protect it from collapse, as he told MarketWatch’s Joseph Adinolfi on October 16.
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Source: https://finbold.com/whats-next-for-israeli-shekel-after-sinking-to-8-year-low-vs-usd/