Further retreat in the shekel: dollar close to 3.04 shekels, euro above 3.51

Another moderate retreat in the shekel, which lost more than 1% against the dollar yesterday, occurred a day after the interest rate cut by the Bank of Israel, with the American currency also rising slightly in global markets. Trading is influenced by the aftermath of a night of further escalation on the Iranian front, including mutual attacks and Iranian missile launches at US military bases in Jordan.

In the local market, the dollar is rising by 0.3% and trading slightly below 3.04 shekels. The euro is strengthening by a similar rate and trading above 3.51 shekels. In global markets, the dollar index against a basket of leading currencies is rising by 0.1% to 99.8 points. The euro is down 0.1%, trading slightly below 1.16 dollars. The pound weakened by 0.1% and is trading around 1.35 dollars.

According to Einat Meir, director of the macroeconomics department at Discount Bank, it is doubtful there will be further interest rate cuts soon:

"The moderation of inflation tipped the scales in favor of the interest rate cut yesterday. However, in the coming months, inflation is expected to rise gradually toward the center of the target (2%), so the pressure for further interest rate cuts will decrease. In addition, as the committee noted, following the rapid recovery in GDP and the update of historical growth data, the gap between the current level of GDP and its level according to the long-term growth trend has narrowed faster than expected and stands at 0.8%. The fact that the gap has narrowed reflects a significant reduction in the damage to GDP resulting from the war, a factor that allows for not rushing to cut the interest rate again."

Meir adds that the issue of political timing also carries weight: "The Bank of Israel is expected to avoid cutting the interest rate close to elections, and therefore an additional interest rate cut, if and when it happens, will come only after the end of the political event."

Roi Kadosh, chief investment officer at Hachshara Insurance and Finance, noted that the Bank of Israel's decision to lower the interest rate "proves that the dry economic data, and primarily the continuous moderation in inflation and the stabilization of price expectations, ultimately tipped the scales. The governor chose to take advantage of the window of opportunity to provide breathing room for borrowers, ease the credit crunch, and stimulate growth in the business sector and the economy as a whole."

Kadosh believes that "this was a brave decision by the Bank of Israel, which is accompanied by significant challenges." He explains:

"The move is being carried out in a complex environment where yields on government bonds around the world continue to rise, and at the same time, fiscal challenges and the expansion of the local deficit are on the agenda. Lowering the interest rate under these conditions could increase volatility in the foreign exchange market - especially if the US moves to raise interest rates in about two weeks."