Opening the Jackson Hole week: Calm in the forex market, dollar above 2.98 shekels

Calm prevails in the foreign exchange market, exactly one week before the Bank of Israel's interest rate decision. Global markets are primarily awaiting the central bankers' symposium in Jackson Hole at the end of the week, and the speech by Kevin Warsh on Friday, his first as Fed Chair. The dollar is trading above 2.98 shekels, while the euro is slightly below 3.49 shekels.

In global markets, the dollar index against a basket of leading currencies is stable at 98.8 points; the euro is trading without significant change just below 1.17 dollars; the pound is stable above 1.36 dollars; and in Japan, the dollar is at 158.9 yen.

Economists at Leader, led by Yonatan Katz, note that as the interest rate decision approaches, hesitation persists.

"The words of Governor Amir Yaron in an interview with Bloomberg were relatively hawkish and slightly reduced expectations for an interest rate cut at the upcoming meeting," the analysts noted.

At Leader, they explain that the level of geopolitical tension will significantly affect the interest rate decision. "Against the backdrop of mutual threats between Donald Trump and Iran, Israel is not involved at this stage, but it is clear that the various fronts are still not completely quiet." The economists emphasize that the inflation environment is currently low (general inflation at 1.5% and core at 1.4%), which supports an interest rate cut. However, the Bank of Israel attaches great importance to inflation forecasts for the coming months. According to analysts, inflation is expected to return to 2.0% in September, although this will be temporary due to the timing of the holidays.

Economists at Bank Hapoalim noted that the rise in global yields is impacting yields in Israel and the Bank of Israel's interest rate policy.

"The central bank's interest rate in Israel is on a different trend than the rest of the world, and the budget deficit is at 3.3% of GDP. At the same time, long-term yields cannot be disconnected from the world: ten-year bond yields have risen to 3.88% and thirty-year bonds to 4.39%," Hapoalim analysts stated.

At Hapoalim, they add that the rise in global yields reinforces the assessment that significant interest rate cuts are unlikely in the future. Regarding the Bank of Israel's decision next week, "everything is open," as the Governor expressed. Low inflation opens a window of opportunity, but strong growth, rising wages, and signs of recovery in the real estate market complicate the outlook. Markets now expect one interest rate cut and stabilization at 3.25%.