Israeli Shekel Near Seven-Year Low as Political Turmoil Looms

Israel’s shekel weakened toward a seven-year low as traders brace for fresh tumult surrounding the government’s controversial efforts to weaken the power of the judiciary.

The shekel fell 0.3% to 3.86 against the dollar as of 3:07 p.m. in London، less than 1% away from the low of 3.89 reached during the March 2020 pandemic rout. Surpassing that level would send the Israeli currency to its weakest level since at least 2016.

Weaken the judiciary

Prime Minister Benjamin Netanyahu is set to push ahead with efforts to weaken the judiciary that have sparked mass protests when the Israeli parliament، or Knesset، reconvenes on Oct. 16.

Investor jitters over the turmoil surrounding the issue، as well as uncertainty over the future of the central bank governor، have combined to pile pressure on the shekel، one of the biggest losers this year among a basket of 31 major currencies tracked by Bloomberg.

“I think everyone now accepts that political volatility is here to stay، which means there’s no real catalyst for shekel strength،” said Peter Kisler، a London-based hedge fund manager at Trium Capital.

Faster Pace

The prospect of a prolonged period of elevated rates in the US have also sent yields on Treasuries rising at a faster pace than those of Israeli local-currency debt. The negative spread is near the widest since November after the Bank of Israel left its benchmark rate unchanged in September، while US yields continue to surge.

Meanwhile، Central Bank Governor Amir Yaron’s five-year term ends in December، and he’s expected to announce in coming weeks whether he’ll seek a second term. It’s not clear whether Netanyahu wants him to.

Several possible contenders have emerged as candidates to replace him. The most recent name to come up is that of Bank Leumi Chairman Samer Haj-Yehia، although he has denied being interested in the post. Haj-Yehia، who’d be the first Arab to take the post and is considered friendly to Netanyahu، said in a speech last year that interest rate hikes are not the way to tame inflation.

“A future governor coming from the business sector rather than the monetary arena is a clear signal from the government to foreign exchange markets that stabilizing the shekel is not a priority، so it’s basically telling traders، ‘Get into position،’” saif Eran Cohen، an analyst at Meitav Brokerage.

Meanwhile، investors are also keeping an eye on fiscal policy ahead of political discussions on adjustments to next year’s budget.

The deficit hit 1.3% of gross domestic product in August، already surpassing earlier government estimations. It’s expected to keep growing mainly as a result of a drop in revenue، down 3.9% in the first eight months of the year.

The currency will only be a buy if it weakens toward 4 against the dollar، according to Trium Capital’s Kisler.