Stability in the foreign exchange market after new sanctions: dollar at 3.00 shekels

There have been very slight movements in exchange rates in both local and global markets following the publication of the US administration's plan for the financial isolation of Iran. The dollar is trading at 3.00 shekels, and the euro is around 3.50 shekels.

In global markets, the dollar index against a basket of leading currencies remains without material change at 99.0 points. The euro is trading above 1.16 dollars, and the pound is above 1.36 dollars. In Japan, the dollar saw a slight increase of 0.2% to 159.3 yen. In the US and across global markets, the primary focus is on the speech by Fed Chair Kevin Warsh this Friday at the annual central bankers' conference in Jackson Hole.

"Uncertainty regarding how the Fed will respond to economic developments, alongside growing doubts about its commitment to prioritizing the fight against inflation, have increased anticipation ahead of the upcoming remarks by Fed Chair Warsh in Jackson Hole," wrote Sim Moh Siong, FX strategist at OCBC.

In the local market, all eyes are on the Bank of Israel's interest rate decision this coming Monday. Contrary to a large portion of economists who estimate there will be no cut, Alex Zabezhinsky, chief economist at Meitav, believes the bank will choose to lower the rate.

"From the interview by Governor Amir Yaron with Bloomberg last week, one could get the impression that a rate cut at the upcoming meeting is not necessarily the most likely scenario. In our assessment, the set of considerations actually supports a rate cut, and the Bank of Israel is expected to reach a similar conclusion," says Zabezhinsky.

Zabezhinsky notes several key considerations:

1. Inflation in Israel has fallen to 1.5%, which is below the midpoint of the target and the lowest level since 2021.

2. The decline in inflation was broad-based, encompassing almost all items in the index over the past year.

3. Inflation expectations for all horizons are below the target midpoint, with five-year expectations being the lowest among developed countries.

He adds that the strong shekel is a significant factor contributing to low inflation, noting that it has returned to being one of the world's strongest currencies. Zabezhinsky also rejects the argument that security risks justify a conservative stance, stating that research does not support high interest rates due to geopolitical risk alone when financial instability is absent.