We are pleased to announce a new blog on the Israeli economy and the Shekel by Daniel Engelsman, Co-Founder and Head of Trading at IsraTransfer Ltd. As we approach the end of the calendar year and start to evaluate what has happened to the Shekel, it feels like we are in a similar position to this time last year. However, the reality is in fact very different.
Last year the fear was that Greece would not be a part of the Euro today, however there are now far greater fears for the Eurozone as a whole. This has a major impact on the rest of the world, including Israel.
Last year the Israeli economy was growing with house prices going through the roof. Today we see an economy in decline (not as bad as the Eurozone, the UK or the US). The latest inflation figures showed the Israeli economy had contracted by 0.1% in the month of November. Latest house prices show that prices have fallen for the second consecutive month. The Bank of Israel has cut interest rates for the second time in three months, leaving them at 2.75%. This is a far cry from what we were experiencing this time last year. We were expecting a series of interest rate hikes (which did occur), house prices were growing at a very high pace and the economy was booming.
This should be of no surprise, since over the last 12 months we have seen the continued decline of the Euro, to the possible threat of extinction (or at least a Eurozone on the brink of a long and deep recession).
In terms of actual exchange rates, the Shekel is approximately 8% weaker today than it was this time last year, despite the ongoing problems with the world economy. In fact this makes perfect sense. The Israeli economy is heavily dependant on exports and is directly effected by what is happening in the world economy. House prices have also started to be affected by new rules and regulations imposed by the Israeli government which has had a knock on effect to the economy as a whole.
This time last year, the US Dollar traded at around 3.56, today it is 3.80. In fact only in the last week we saw the rate creep above 3.80 for the first time in 15 months. As fears over Europe continue, the US Dollar has benefited immensely since investors take money out of riskier assets, and put them in to the ‘safe haven’ currency – the US Dollar.
Sterling traded at 5.50 this time last year, today is trading at 5.90. The majority of this rise is due to Shekel weakness rather than Sterling strength as the UK economy is teetering on the edge of recession. It is also surprising since the UK is heavily exposed to the problems in the Eurozone.
The Euro is defying all reason and logic, this time last year it was trading at 4.70 and today 4.95. Whilst, the Shekel is certainly weaker, the Euro (in my opinion) should be a lot closer to 4.50 than where we see it today. With three new governments formed in different European countries over the last month I would have expected the Euro to be a lot weaker than it currently is.
My predictions for 2012:
1) US Dollar v Shekel rate will be at 4.00 for some part of the year.
2) Sterling v Shekel rate will be at 6.20 for some part of the year.
3) Euro v Shekel rate will go as low as 4.20 at some point during the year.
Daniel Engelsman is Co-Founder and Head of Trading at IsraTransfer Ltd. Daniel helped found IsraTransfer when he made Aliyah in 2008 having previously been in the Foreign Exchange industry in the City of London since 2000. IsraTransfer is a boutique foreign exchange company helping clients from all over the globe send funds to Israel. Recently, IsraTransfer have started to operate the AACI Foreign Exchange Program with the AACI. For more details visit www.isratransfer.com‘
