Shekel Strengthens to 30-Year High Against the US Dollar

The Israeli shekel has reached its strongest position against the US dollar in 30 years, with the Bank of Israel recently setting the representative shekel-dollar rate at NIS 3.057/$, reflecting a 0.972% decrease. This marks a significant gain of over 20% for the shekel this year, with forecasts suggesting it may soon dip below the NIS 3/$ threshold. Analysts from Israel Discount Bank and Ayalon Insurance and Finance have expressed optimism about this potential, citing the shekel's resilience following geopolitical events, particularly the ceasefire with Iran and ongoing negotiations with Lebanon.

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The shekel's appreciation is attributed to several factors, including a declining risk premium for Israel, a weakening US dollar, and substantial foreign investment. In 2025, net foreign investments in Israel reached $39 billion, a notable increase from $25 billion in 2024. Additionally, the Bank of Israel's monetary policy and the performance of the local stock market have contributed to the shekel's strength. However, experts caution that ongoing tensions in the region, particularly regarding Iran, could introduce volatility in the currency markets.

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The strong shekel has mixed implications for the Israeli economy. On one hand, it helps to moderate inflation, which has fallen within the Bank of Israel's target range of 1%-3%. Conversely, exporters are facing challenges as their revenues diminish due to the currency's strength. Traditional exporters are particularly affected, while technology and defense exporters may benefit from increased demand for their products despite the shekel's appreciation.

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Some economists express skepticism about the sustainability of the shekel's strength, particularly if geopolitical tensions escalate. Concerns have been raised about the potential for renewed conflict in the region, which could lead to a rise in the risk premium and pressure on the shekel. Additionally, the Bank of Israel's potential intervention in the foreign exchange market remains uncertain, especially given the current US administration's stance against currency manipulation.

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Market analysts have noted that the shekel's performance is influenced by both local and global economic conditions. "The market expects positive change in Israel’s geopolitical position," stated Jonathan Katz, chief economist at Leader | Capital Markets. However, he also warned that the optimistic scenario could lead to overreactions in the market.

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Looking ahead, the Bank of Israel may consider interest rate cuts if the shekel's strength persists and inflation remains stable. Current market expectations suggest potential interest rate reductions in the coming year, although some analysts predict only one cut before the end of 2026.

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• “Moskovich continues, "The assessment is that progress in talks and reaching understandings with the Lebanese government will lead to continued weakening of the dollar against the shekel and even crossing below the NIS 3/$ threshold.” — Idit Moskovich, First International Bank Trading Room Manager

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• “He says, however: "We are going through tough times, but Israel’s macro position is very strong.” — Jonathan Katz, Chief Economist, Leader | Capital Markets

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• “the strengthening of the shekel contributes to a lowering of inflationary pressures, and so it could help consumers by moderating the rate of erosion of their purchasing power, and through interest rate cuts, if the trend persists.” — Matan Shitrit, Phoenix Financial Chief Economist

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• “Katz explains that the market is not linear, and that the expectations aroused by "good news" sometimes lead to an overreaction that moderates later.” — Jonathan Katz, Chief Economist, Leader | Capital Markets

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