Sustained appreciation in the Shekel continues to keep inflation in check, along with the prospects of future interest rate hikes.

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From the IsraTransfer Trading Desk

It was an up and down month for the USD/ILS, literally.  After starting off February at 3.63, the rate retreated back to the key 3.60 level.  Support there convincingly held, rallying back to as high as 3.66. The good times, however, didn’t last long, as the rate immediately reversed course, paying a trip once again back down to just above 3.60.  Late strength in the USD to close out the month, due largely in part to strong GDP numbers in the last quarter of 2018, resulted in a rebound up to 3.63 as we closed out the month right back where we started.

Going forward, the latest out of China is for an expected lowering of its economic growth projections, and with anxieties over a global economy slowdown in general we may once again see investors rush back to the safe haven of the US Dollar.  A scenario such as that would certainly strengthen the US currency, and likely result in higher exchange rates across the board, including against the Shekel.

Away from the US, decisions, decisions, decisions are on the calendar in the week to come with Australia, Canada, and the EU all slated to make their latest interest rate calls.  While no change in rates is expected by any of the central banks, language and tone will be critical in gauging the outlook for future rate movements – especially when it comes to the Euro where uncertainty over US auto tariffs remain a heated area of contention.  Interestingly, Canadian employment numbers on Friday might be worth keeping an eye on, as lately the country’s economic data has been surprising to the upside, which could result in some strengthening in the CAD should it do so again.

Finally, Sterling ended the month on a high note as positive Brexit sentiment sent GBP higher across the board. Perhaps the UK’s just-inked deal with Israel will be the first domino to fall??  More on that later….

While nothing has yet been agreed on, or any other options offered by the EU are on the table, the general market belief is that a hard Brexit is becoming increasingly unlikely. That said, as long as the chance of a No Deal Brexit on March 29th remains out there, a volatile month could be in store for GBP.

All things considered, the Shekel has shown significant strength against most of the major global currencies to start the year, and our hunch is that upside is limited from here.  As will be discussed below, with potential interest rate hikes seemingly to now be getting kicked further and further down the road, we wouldn’t be surprised to find ourselves talking about a weaker Shekel a month from now in our next installment of the IsraTransfer Report.

Fourth Quarter Comeback

After a slight slump in performance over the second and third quarter of 2018 Israel’s economy seems to be back on track in line with its long-term pace.  In its latest checkup, a boost in personal consumption helped lift fourth quarter growth despite a lagging in the exporting of goods department.  Furthermore, even with a slight uptick in unemployment numbers, job market data still painted a fairly rosy picture – including with wage growth most notably in the business sector.

Bank of Israel Says Keep the Change

It was business as usual at Bank of Israel’s February meeting, where once again the Monetary Committee decided to leave interest rates unchanged.  The decision marks the second one under the leadership of new BoI Governor, Amir Yaron, who took over back in November, following BoI’s surprise action to raise interest rates from their all-time low of 0.1%. Interestingly, since the unexpected increase the Shekel has now appreciated by 2%.  The recent rise in inflation into the low-end of the government’s target range had in large part been behind the decision for the previous rate hike.  However, a continuation of Shekel appreciation could stem that tide, thus putting future rate hikes on hold for the foreseeable future.

The Israel Real Estate Section 

In the wake of some pretty raucous partying to end the year, Israel’s mortgage market apparently fell victim to something of a hangover in January.  In the latest numbers published by the Central Bureau of Statistics and the Ministry of Finance, data showed a decline in new loans taken by 12% in value versus those taken in December 2018.  Once again reporting showed the government’s Machir Lamishtaken or “Buyer Fixed Plan”helping to fuel the increase in new deals over the second half of 2018. Also of note in the newly released figures was the continuation of the trend of higher leverage mortgages, including over one third of those taken in the first month of the year averaging at least 60%.

Getting Ahead of the Brexit Curve

The EU may still be without its post-Brexit plans, but the same can no longer be said for Israel.  Ahead of the fast approaching March 29th Brexit deadline, Israel officially became one of the first countries to ink a deal with the UK before its separation from the European Union.  The core of the agreement between the two countries will reportedly be based on the existing infrastructure of agreements Israel currently has with the EU.  The post-Brexit pact is no doubt a big deal for Israel and a huge weight off its chest, as the UK represents the state’s largest trading partner in Europe, and it’s 3rd largest overall, with trade totaling the equivalent of $11 billion USD in 2018.

Ok, consider yourself all caught up. Wishing all a very prosperous month and Chag Purim Sameach!

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