Why the Israeli shekel is the world’s best performing currency against the US dollar this month
- The Israeli shekel rose 8.8% from a late October low, hitting 3.72 against the dollar.
- It’s rebound was helped by the Bank of Israel, which unloaded $7.3 billion from its reserves last month.
- The rally was further driven by an unwinding in short bets against the currency.
The Israeli shekel topped foreign currency markets this month, jumping 8.8% against the dollar from a late-October low.
Now trading at 3.72 per greenback, the shekel was able to surge past earlier losses stemming from the sudden eruption of the Israel-Hamas war. The conflict previously pulled the currency down to an 11-year low, before its fortunes began to reverse.
The rebound was helped by intervention from the Bank of Israel, which stepped in as the shekel slid about 6% in the weeks following Hamas’ October 7th attack.
To defend the shekel, the central bank proved willing to shrink its reserves, which fell $7.3 billion last month. Added to that were efforts to boost liquidity, with the BoI providing $15 billion through swap lines.
Further support came from a change of tune among investors, who originally fled the shekel over fear that the conflict would spread regionally.
This led to shekel shorts in October hitting their highest level in two years. But despite early rhetoric, the fighting has largely remained contained, and a momentary ceasefire has since been reached.
When the shekel was sliding, worries mounted that the BoI would be forced to raise rates in support, an unfavorable move for a wartime economy. But with the currency’s new found strength, the central bank kept its interest rates steady on Monday, leaving them at the 4.75% level.
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— Business Insider
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