The Israeli shekel, trading at close to 4.00 per U.S. dollar (USD/ILS), has reached its lowest level since 2016 as Israel’s war with Hamas prepares to enter its second week.
According to a Bloomberg report citing the United Nations, Israel’s military told some 1 million Palestinians living in Gaza on Friday to evacuate the north of the region — an unprecedented order for almost half the population of the sealed-off territory ahead of an anticipated ground invasion against the ruling Hamas militant group.
The ongoing conflict, which is now a week old, has claimed over 2,800 lives on both sides, according to the Associated Press, and heightened tensions throughout the Middle East. Israel has bombarded Gaza since a suprise attack by Hamas fighters over the weekend, during which they infiltrated southern Israel and carried out a devastating assault, claiming hundreds of lives.
The effect of the assault on Israel’s economy and national currency was instant — the dollar to shekel rate has risen by 3.1% in the wake of Saturday’s attacks and is headed for its worst week since February.
Israel’s dollar debt also remains under pressure, after falling 1.8% this week through Thursday, and ranks among the biggest losers across emerging markets. The yield on the security due in 2030 climbed 25 basis points to 5.9% in early London trade on Friday.
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To prevent further shekel depreciation and provide market liquidity, the Bank of Israel announced a plan to sell up to $30 billion in forex. With the plan, the central bank will be able to intervene in the market to “moderate volatility in the shekel exchange rate and provide the necessary liquidity for the continued proper functioning of the markets,” it said Monday.
The move came as the shekel was already facing pressure due to Prime Minister Netanyahu's actions against the country's judiciary system, despite earlier protests in the year.
The Bank of Israel has also introduced measures beyond its $30 billion forex sale program, which include offering dollar liquidity to the market through SWAP mechanisms of as much as $15 billion. SWAP mechanisms are a type of futures contract where two parties exchange cash flows or liabilities from two distinct financial instruments.
On October 12, Bank of Israel Governor Amir Yaron declared his decision to prolong his term, ensuring his leadership until at least the end of the current emergency period, according to a report by The Times of Israel. Yaron will remain in office to address the economic challenges Israel faces during the state of war.
Yaron affirmed his commitment to the government's request for him to remain in his post, which followed the formation of a national emergency government.
Originally, Yaron's term was set to conclude by the end of 2023, and he was expected to decide on whether to seek another five-year term after the conclusion of the Jewish High Holidays, which coincided with the commencement of the conflict between Israel and the Hamas terrorist organization.
“Due the emergency and the challenges to the Israeli economy at this difficult time, he (Yaron) accepts the request to extend his term, at least until the end of the emergency period,” the Bank of Israel said in a statement.
USD/ILS traded at 3.9711 at the time of writing, up 0.03% on the day, as per MarketWatch data. The dollar to shekel rate has gone up by close to 13% year-to-date, with the Israeli currency shedding over 3% of its value against the greenback in the past five days alone.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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