Trading in foreign currency began this morning with the market awaiting the interest rate decision by Governor of the Bank of Israel Stanley Fischer today at 18:30. The shekel strengthened against the dollar and euro amid expectations that Fischer will announce an interest rate hikes this evening.
A further vote of confidence in the shekel by global markets can be found in the news that the shekel will become a convertible currency on capital and money markets worldwide, following Israel's official admission to the international currency clearing system operated by CLS Bank International.
Another factor that will have an equal effect on local foreign currency trading, is the surprising figures on economic growth in the first quarter, published yesterday by the Central Bureau of Statistics. GDP grew by an annualized 5.4 percent, far higher than the Bank of Israel's 3.2 percent forecast for 2008 as a whole. Fischer is widely expected, regardless of yesterday's figures on economic growth, to raise the interest rate by 25 or 50 basis points. The interest rate is currently 3.25 percent, the lowest it has ever been in the country's history, following two 50 basis point cuts, and then a decision to leave the rate unchanged.
The shekel-dollar rate is currently down 0.93 percent at NIS 3.302/$, and the shekel-euro rate is currently up 0.16 percent at NIS 5.2493/â?¬. The shekel-dollar representative rate was set 0.15 percent lower on Friday at NIS 3.333/$, and the shekel-euro representative rate was set 0.365 percent lower at NIS 5.2408/â?¬.
Online foreign currency broker Easy Forex says the higher-than expected GDP growth figures will give the shekel a tail wind and strengthen it against the leading currencies. The local economy has provided some impressive macroeconomic data, in contrast to earlier forecasts. These data have made the chances of an interest rate increasingly likely, although some banks, including Merrill Lynch, still believe the interest rate will remain unchanged and could be cut by a further 50-basis points by the end of 2008.