Dollar trades around 3 shekels ahead of US inflation data

The foreign exchange market is seeing moderate movements this morning as investors await the publication of US inflation data later today. The dollar is strengthening by 0.1% and trading at 3.004 shekels, the euro is climbing by 0.2% to 3.465 shekels, and the pound is rising by 0.2% to a level of 4.057 shekels.

In the international market, the euro weakened by 0.1% against the dollar to 1.153 dollars, the pound is stable at 1.351 dollars, and the dollar is strengthening by 0.1% against the yen and trading at 159.43 yen. The dollar index, which measures the currency's value against a basket of major currencies, is rising by 0.1% to 99.78 points.

According to forecasts, the consumer price index is expected to rise in July by 0.1% on a monthly basis and the core index by 0.2%. A figure higher than expected may strengthen assessments for an interest rate hike at the Federal Reserve meeting in September, while the rise in oil prices also adds to price pressures. The market will continue to look for clues regarding the Fed's interest rate direction, after the weaker-than-expected employment report published last week and the press conference held by Fed Chair Kevin Warsh last month failed to dispel the uncertainty.

"There is a path where inflation can moderate as we progress through the remainder of 2026," wrote ING analysts, referring to the assumption that oil prices will remain contained and the Strait of Hormuz will reopen. "In fact, the market is already pricing in a soft landing for inflation."

Fed interest rate futures reflect a 50% probability that the central bank will leave the interest rate unchanged at the two-day meeting ending on September 16, and an identical probability for a quarter-percentage-point hike, according to the CME Group's FedWatch tool.

"The foreign exchange market is currently between two major forces," wrote Yossi Menashe, founder and co-CEO of Altshuler Shaham Financial Services. "On one hand, the weak employment report in the US reduced expectations for another interest rate hike and supported a weakening of the dollar. On the other hand, the renewed rise in oil prices following the distancing from the agreement with Iran brings back to the market the fear of inflationary pressures and could keep interest rates and yields at higher levels. Therefore, the price index to be published in the US is of particular importance: a moderate figure could strengthen the assessment that the Fed will be able to avoid further tightening, while an upside surprise could quickly change pricing and provide renewed support for the dollar."

Menashe further said that the fact that the dollar-shekel continues to trade around the 3-shekel level even when energy prices are rising and uncertainty around the Strait of Hormuz is increasing, "testifies at this stage to the relative resilience of the local currency. However, as long as there is no arrangement that will allow for the full return of tanker traffic in the strait, the risk premium on oil is expected to remain a significant factor. Prolonged energy price increases could seep into inflation expectations and yields, and subsequently also increase volatility in the shekel."