Stabilization in the foreign exchange market: the dollar is trading below 2.98 shekels

There are slight movements in the foreign exchange market, both locally and globally, following the sharp retreat in the dollar yesterday. It is trading this morning unchanged, below 2.98 shekels. The euro is rising by 0.2% and is trading slightly below 3.48 shekels.

Stabilization is also evident in global markets: the dollar index remains unchanged at 98.8 points. The euro is stable, trading slightly below 1.17 dollars. The pound is in the vicinity of 1.36 dollars. In Japan, the dollar is rising by 0.2% to 158.4 yen.

The dollar recorded sharp declines yesterday against leading world currencies; the dollar index is currently at its lowest level since May of this year. This follows the US Treasury's announcement of a doubling in buybacks of long-term US bonds, effective from September through November 4. This is a response to the sharp declines in US government bonds since June, which led to a surge in yields.

Tony Sycamore, a market analyst at IG, said that the US Treasury is taking long-term bonds out of the market while continuing to issue more short-term T-bills. According to him, the move exerts downward pressure on long-term bond yields without requiring the Federal Reserve to expand its balance sheet.

"This is not official quantitative easing (QE) and not yield curve control, but it is a clear signal that Washington is prepared to act against the rise in premiums on the long end," said Sycamore.

Brian Jacobsen, chief economic strategist at Annex Wealth Management, stated that the US Treasury's move provides only temporary relief and illustrates that "we are in an era of fiscal dominance." Jacobsen explained:

"The Fed is incapable of influencing long-term interest rates. Now the Treasury will issue more short-term debt because of the weak demand for long-term debt. Even if the Fed raises the interest rate, the Treasury is effectively injecting more short-term debt into the economy that functions similarly to money."

A similar position was presented by Ronen Menachem, chief market economist at Mizrahi Tefahot. According to him, the question is whether this is a one-time move or if it will have a continuation.

"The factors that brought about the rise in market interest rates in the first place are still operating, among them the fear of inflation, the deep and deepening deficit in the US government budget, the sale of US bonds held by other countries (including Japan), and the lack of intention on the part of the Fed to influence long-term rates through the interest rate as well."