Importers saw the dollar dive below 3 shekels and pounced

New data from the Bank of Israel reveals the forces that moved the shekel in recent months. While institutional bodies continued to sell dollars amid the strengthening of the shekel, importers and the business sector identified an opportunity. Bank of Israel data shows how the business sector took advantage of the dollar's fall below the 3 shekel threshold in the second quarter and purchased foreign currency within just three months in a volume characteristic of an entire year.

A breakdown of the data by the chief economist of the Meitav investment house, Alex Zabezhinsky, reveals that the business sector purchased foreign currency in the second quarter of the year in the amount of about 12 billion dollars, and about 24 billion dollars over the last four quarters. These purchases, according to him, were intended to lock in the low dollar and contribute to lowering the cost of imports later on.

"Took advantage of the low levels of the dollar"

"The last year was quite unusual. The business sector, and especially the importers, took advantage of the low levels of the dollar, which at its peak traded around 2.8 shekels," says Alex Zabezhinsky. "I assume that is where they increased activity and purchased a lot of foreign currency at cheap prices, whether for raw materials, investment products, or finished products for the public. For exporters, it was a less favorable period, but for importers, it was an excellent period with significant profit that allowed them to be more competitive."

Another influential factor is the behavior of foreign investors, however, in recent months they have maintained relative moderation. Usually, this category consists of development centers and technology companies that tend to sell foreign currency to pay salaries, rent, and taxes. "In the data, we do not see a breakdown, but there was negligible activity there. It is possible that there was speculative activity by other non-residents," adds Zabezhinsky.

Sources in the capital market estimate that the direct intervention of the Bank of Israel in purchasing dollars contributed to the trend. In May, the bank purchased about 800 million dollars, and in June, the volume of purchases rose to about a billion dollars. Although the bank acted to ensure the integrity of trading, sources believe that even these targeted interventions were enough to change the mood and motivate many importers to start purchasing dollars themselves.

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Hedging cost jumped, the institutional ones did not stop

A particularly prominent side is the institutional investors, which have been sharply reducing their exposure to foreign currency for several quarters. The trend became even more pronounced recently, against the background of rising hedging costs following three interest rate cuts by the Bank of Israel. While the local bank is lowering the interest rate, the Fed continues to keep it at a high level; this interest rate gap acts against the shekel and significantly increases the premium that institutional investors pay for converting dollars. Market estimates speak of a doubling in price compared to the period before the interest rate cuts in Israel.

According to Zabezhinsky, this is an unusual year characterized by a sharp decline in the exposure of institutional bodies to foreign currency: "This is a process that feeds itself: if there is a decline in exposure that leads to a stronger shekel, then the stronger shekel causes an even stronger decline in exposure. It was fast and powerful at an unprecedented level." The strengthening of the shekel, which began in the first quarter of 2025, led to a sharp decline in exposure to foreign currency in the public's financial asset portfolio from 17% to about 13% to date.

In the last year until the end of the second quarter, record activity volumes were recorded. Institutional bodies sold foreign currency in the amount of about 43 billion dollars, of which about 14 billion dollars in the second quarter of 2026 alone.

"The public is returning to buy abroad"

"In the last two months, we see that the public is starting to buy abroad again and we are already at a turning point," analyzes Zabezhinsky. Yonatan Katz, the chief strategist of Leader Capital Markets, points to one central variable - the American stock exchange. As it rises, the shekel strengthens, and vice versa.

"If I look at the last year, the answer is unequivocally the behavior of the institutional bodies," explains Katz. "Of course, real factors are also present, such as the surplus in the current account, the robustness of the high-tech sector, and fundraising abroad, which totaled almost 8 billion dollars in the first half. However, a factor no less important is the markets abroad, and especially the stock exchanges, and their direct impact on the activity of the institutional ones."

Smotrich's claim and the economists' response

Zabezhinsky estimates that the strong pendulum movement will stabilize. "I think they 'exaggerated' a bit to one side and then the other, and now they are returning to more equilibrium. Looking forward, without wars and pandemics, the shekel-dollar rate will be in accordance with the behavior of the American stock exchange. Investors are now in a waiting period ahead of the elections," he says.

About two weeks ago, Finance Minister Bezalel Smotrich attributed the strengthening of the shekel to the real activity of the economy. Zabezhinsky agrees that the shekel has a real basis, but notes: "When I examine the correlation against the American stock market, the connection is very clear: the institutional ones are exposed to the stock exchanges in the USA, and when these rise, the exposure to foreign currency increases, which obliges them to sell foreign currency. In summary, the shekel has stable foundations, but it is influenced by a variety of factors."