FX Markets Calm Ahead of Rosh Hashanah as ECB Rate Decision Looms
Local FX markets show calm ahead of Rosh Hashanah as the dollar trades near 3.02 ₪. Global markets await the ECB rate decision and US inflation data.
Foreign Exchange Markets Calm Ahead of Rosh Hashanah
Local foreign exchange markets showed slight movements ahead of the Rosh Hashanah holiday break. Tomorrow, on the eve of the holiday, FX activity will be subject to Bank of Israel restrictions, meaning no foreign currency transfers or opening/closing of dollar deposits will be possible. Furthermore, no representative exchange rate will be set, leaving today's rate valid until Monday.
The dollar is trading around 3.02 ₪, while the euro is hovering slightly below 3.52 ₪. Global markets also experienced minor fluctuations ahead of the European Central Bank's interest rate decision and the upcoming release of US inflation data for August.
ECB Rate Hike Anticipated Amid Rising Inflation
European markets are closely watching the ECB rate decision, with forecasts suggesting the central bank will raise the deposit rate from 2.25% to 2.50%. This follows a similar hike in June—the first in three years—while rates remained unchanged in July.
The expected rate hike is a response to European inflation, which climbed to 3.3% in August, its highest level since September 2023, compared to 2.9% in July. This surge is primarily driven by energy prices, which jumped by 14.3% in August compared to 10.3% in July. ECB President Christine Lagarde previously indicated that further rate hikes would likely be on the agenda depending on incoming macroeconomic data.
"Although only a few ECB members have spoken publicly about monetary policy forecasts in recent weeks, we continue to expect an interest rate hike because risks to the inflation outlook remain skewed to the upside," said Ulrike Kastens, senior economist at DWS.
Carsten Brzeski, global macro head at ING, noted that as long as inflation stems mainly from energy prices, additional hikes beyond the expected one might not make sense and could harm the eurozone economy. However, he described the upcoming ECB hike as insurance against high energy costs spilling over into broader price and wage increases.
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