Shekel Strengthens Against Dollar Despite Ongoing Judicial Reform Protests

Despite the legal reform and the protest, the shekel continues to strengthen against U.S. dollar, trading around 3.62 on Thursday.

Governor of the Bank of Israel Prof. Amir Yaron, who heads the Monetary Committee, said that the country is nearing the end of interest rate hikes and this also has a positive effect on the shekel.

While the protests against the government's judicial overhaul are at their peak, the dollar exchange rate continues to go down in the last few days. The shekel strengthened against the dollar on Wednesday, while weakening against the euro, which rose by 0.4 percent on Thursday morning.

Although another interest rate increase is expected this year, Prof. Yaron said that the central bank sees a moderation in inflation in the last six months and in particular in the last three months. Such statements signal to the market that Israel is close to the end of interest rate hikes, which has a positive effect on the shekel. 

However, the Bank of Israel also noted that inflation in Israel is still 1 percent higher than it should have been. Prof. Yaron linked this to the devaluation of the surplus shekel, which he says is due to the judicial reform legislation.

This could become a problem because if inflation in Israel remains high, the Bank of Israel will have to keep raising interest rates. The shekel was one of the strongest currencies in the world in 2021, but in 2022 it weakened along with the declines in the world markets and this year’s domestic tensions.