Goldman Sees Risk of ‘Grind Lower’ in Dollar-Shekel After Breach

(Bloomberg) --

The shekel is likely to appreciate further after surging past the psychological barrier of 3.4 per dollar last week, according to Goldman Sachs Group Inc.

• The move probably marks “a change in signal, not in official policy” by the Bank of Israel, Goldman analysts led by Zach Pandl said in a report to clients
• Despite the U.S. currency’s weakness in recent weeks, the shekel was stable at 3.4, “suggesting that the BoI was, at least for a brief period, creating something which resembled an FX floor versus USD, in turn begging the question about how sustainable such a policy may be in a broader dollar downtrend”
• It’s unclear what caused the breach; end of month seasonality could have been a factor
  • Israel’s currency ended last week at 3.3596 against the dollar, extending its gain for the year to almost 3%

• Goldman analysts believe “strengthening pressures on the currency are likely to remain” given the structure of Israel’s economy; the shekel “would be be significantly stronger” without central bank interventions
• “The fact that the BoI has allowed for USD/ILS to break through 3.40 suggests they recognize these forces as well, and points to risks of a grind lower in USD/ILS”

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