shekel

Fighting currency appreciation is an expensive business. It cost the Swiss SFr 21bn ($23bn) before they gave up and let the franc rise. New figures out from the Bank of Israel show it cost them NIS 17.6bn ($4.8bn). The Bank’s overall loss was NIS 17.9, of which 98 per cent can be attributed to exchange rate moves.

Israel’s foreign exchange stockpile has been growing – but the governor says these reserves might prove useful if there is a reversal of capital flows. Israel has been raising rates to contain inflation and dampen the too-buoyant housing market. The governor has called for international rules on foreign exchange markets and capital flows, just as exist currently for trade.

Traders re-establishing short positions in the dollar may be causing the appreciation of the shekel, which officially closed at 3.736 yesterday. The Bank of Israel – which now only intervenes in unusual circumstances – bought between $200m and $300m at around 1200 GMT Tuesday, said dealers.

The currency closed 2009 at 3.775 to the dollar, with hardly any movement during December, a traditionally quiet trading month as traders seek to hold their positions. But the shekel has appreciated 1 per cent against the dollar over the first two sessions of 2010 and has now advanced for seven straight sessions. “Overseas banks have opened new positions and those positions are short dollar-shekel,” said a dealer at Bank Leumi. Read more