Shekel Steady Above 3.01 per Dollar as US Markets Close for Labor Day
The shekel remains stable with the US dollar trading above 3.01 shekels during thin holiday trading. Bank Hapoalim economists project global rate hikes and expect the Bank of Israel to pause its rate cuts.
Quiet Trading on Forex Market Due to US Holiday
Light and negligible movements were recorded in exchange rates at the partial opening of the foreign exchange trading week, primarily due to the fact that financial markets in New York are closed today for the US Labor Day holiday.
As is customary on US federal holidays, local foreign exchange activity in Israel is limited. According to Bank of Israel directives, it is not possible to open or close dollar deposits today, nor is it possible to execute or receive foreign currency transfers. On the local market, the US dollar remains without material change, trading above 3.01 shekels, while the euro is also stable around 3.50 shekels.
On global markets, the US Dollar Index (DXY), which measures the greenback against a basket of major currencies, is unchanged at 99.2 points. The euro remains stable at 1.16 dollars, while the British pound fell by 0.1% to trade around 1.35 dollars.
Global Central Banks Prepare to Raise Rates
According to economists at Bank Hapoalim, global central banks are already preparing to raise interest rates, with some expected to act very soon.
Bank Hapoalim analysts noted:
"The European Central Bank is expected to raise its interest rate as early as next week, the Bank of Japan a week later, followed by expected rate hikes from the Federal Reserve and the Bank of England."
In the US, markets are awaiting August inflation data this week. The Producer Price Index (PPI) will be released on Thursday, followed by the Consumer Price Index (CPI) on Friday.
Bank Hapoalim points out that following the strong August employment report released last Friday, expectations for a Federal Reserve rate hike have risen. In its last meeting on July 29, the Fed left its benchmark rate unchanged for the fifth consecutive time at 3.75%.
"The market is pricing in one rate hike to 4.0% by the end of the year (with a probability of about 62% as early as September), and another hike in March 2027 to 4.25%. The market also reflects a 45% probability of an additional hike to approximately 4.50% by the end of 2027."
Bank of Israel Expected to Hold Rates Steady
The Bank of Israel, which lowered its interest rate last week for the third consecutive time, may decide to stand still in the coming months, according to Bank Hapoalim's projections.
"The window of opportunity for further rate cuts in the coming months has closed, and in the beginning of next year, much will depend on geopolitical and political developments. The US interest rate is expected to rise twice by then, opening a gap of about one percent between the US and Israeli rates. Markets now expect the Bank of Israel's rate to remain unchanged over the coming year."
