Investment bank estimates: This is what could cause the shekel to jump

The elections in Israel on October 27 could lead to a shift of up to 3% in the shekel in either direction, according to economists at J.P. Morgan. In a review by the bank published by Reuters, it was noted that the shift could occur, "as investors examine the prospects of political change after years under Prime Minister Benjamin Netanyahu."

The bank's economists noted that market expectations increasingly point to a victory for the opposition led by former Chief of Staff Gadi Eisenkot, but added that the calculation remains complex and that polls have previously underestimated the Likud party.

"No significant changes are expected in fiscal or economic policy, but the election results are expected to influence Israel's relations with Western allies, and the perception of international investors regarding reforms in the judicial system and policy in the West Bank and Gaza," the report states.

Under the base case assumption of an opposition victory, to which the bank assigns a 55% probability, the shekel could strengthen by 2%–3% as concerns regarding reforms diminish. Conversely, a victory for Netanyahu could, in their estimation, lead to a 3% decline in the shekel. A scenario of a broad coalition and prolonged political uncertainty would lead to the shekel remaining stable.

Although there are various scenarios, the bank estimates that the overall risk-reward ratio is quite balanced, considering the strength of the tech sector in Israel, a positive external environment, and potential resistance from the Bank of Israel to excessive currency strength. J.P. Morgan noted that the shekel has previously shown sensitivity to institutional concerns, and thus from the beginning of 2023, it weakened by almost 10% against the dollar in the period between the presentation of the controversial judicial reform and the Hamas attack on October 7.