Foreign currency options trading points to a stronger shekel. The shekel-dollar exchange rate fell 0.3% in morning inter-bank trading to NIS 3.26/$, and the shekel-euro exchange rate fell 0.3% to NIS 5.125/€.
Friday's representative shekel-dollar exchange rate was set at NIS 3.273/$, up 0.61% on the day before, while the representative shekel-euro exchange rate was set at NIS 5.139/€, down 0.51%. The shekel-dollar exchange rate fell 3.1% last week and the shekel-euro exchange rate fell 3.6%.
Union Bank says, "We believe that the market volatility will persist in view of the soaring prices for oil and commodities to record levels, which is exacerbating the slowdowns in the US and Europe and can be expected to adversely affect Asian markets, such as China and Japan. The weak shekel-dollar exchange rate and high financing costs will negatively affect the second quarter results of many TASE-listed companies. Despite strong domestic macroeconomic figures, the economy will probably be affected, and we predict further drops on the TASE. We therefore recommend investors with more than 20% of their portfolios in stock to reduce the holding to 20% until the furies pass and the general direction is clarified."
Union Bank adds that the Bank of Israel's latest interest rate hike, while the US Federal Reserve Bank kept its interest rate unchanged, widened the interest rate differential to 1.75% in Israel's favor. The European Central Bank raised its interest rate to 4.25%, despite inflationary pressures. Union Bank predicts that in view of this rate hike, combined with the weak dollar, the Bank of Israel will not raise the interest at the end of July, but will wait a month.
Union Bank therefore predicts that the shekel will appreciate against the dollar. It predicts that the shekel-dollar exchange rate will be traded at around NIS 3.26/$ this week, with a tendency to slide towards NIS 3/$.
Union Bank also predicts that the Consumer Price Index (CPI) will rise by 0.4% in June and by 0.3% in July and 0.2% in August. It predicts 2.5% inflation over the next 12 months.
Published by Globes [online], Israel business news - www.globes-online.com - on July 6, 2008
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