(Bloomberg) — Israel’s shekel has gone from being the worst currency globally to posting the biggest gains after the central bank spent billions of dollars shielding it from the fallout of the war with Hamas.
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The rebound has left the shekel up about 7% so far this month, reversing a plunge of almost 6% in October that took it to an 11-year low of 4.0855 per dollar.
With the conflict costing Israel’s economy around $260 million every day, currency traders initially fled. But the central bank’s pledge to tap its foreign reserves slowed the drop and the “opportunistic flows” faded when the currency failed to weaken beyond 4.10, said Henrik Gullberg, macro economist at Coex Partners Ltd.
A decline in US bond yields in recent weeks has added to the tailwind for the shekel as investors increasingly wager the Federal Reserve is done hiking rates.
“The momentum was lost,” Gullberg said. “Being short the shekel was no longer as interesting.”
The shekel was 0.4% stronger at 3.7763 against the dollar as of 12:43 p.m. in Tel Aviv. In the equities market, Israel’s benchmark index climbed for a third day, after bouncing 7% from a two-and-a-half year low reached in late October.
The Bank of Israel sold $8.2 billion in October as part of its currency defense. At the start of the fighting, it pledged to sell as much as $30 billion from its reserves — and to provide as much as $15 billion more via swaps.
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