Updated: Jun 10, 2019
A weakening in the shekel to close out May sets up a promising beginning of June for the USD/ILS.
From the IsraTransfer Trading Desk
True to its reputation the month of May came "in like a lion and out like a lamb" with respect to strength in the shekel. After closing out April above 3.60, the good times didn't last long as the currency appreciated dramatically, and in a hurry, to drive the rate all the way down to as low as 3.55. Following nearly two weeks in the sub 3.60 doldrums, the ILS once again saw some weakening, taking us back up above 3.60 to close out the month and setting up a promising start to the month of June.
Interestingly enough, despite all the back and forth, the shekel has now strengthened by over 5.5% since the beginning of the year versus most of the world's major currencies, including the US dollar. As a result the shekel's nominal effective exchange rate (the Bank of Israel's average of the shekel exchange rates against the country's major trading partners by proportion of trade) is now just below its highest ever levels. Unfortunately, this has also resulted in a lower USD/ILS rate than we had hoped for by this point, although not as bad as the EUR/ILS, which has been absolutely pummeled by shekel strengthening against the euro to the tune of over 6% since January.
As things stand now, the trading trend over the past two months has been mid-month strength in the shekel, leading to USD/ILS rates in the 3.55 range, book-ended by late month weakness driving it back up to at or above 3.60. We wouldn't be surprised to see that trend continue (at least to begin June), given renewed investor appetite for the safe haven currency of the US dollar in light of President Trump's ongoing trade war with China. However, given his history of capriciousness and unpredictability, a deal could be struck at any time, thus changing the global economic landscape in the blink of an eye. Consequently, it could be an interesting month.
In sterling trading, unfortunately May turned out not to be her month for the UK's Prime Minister. After a long and arduous unsuccessful struggle to come to a Brexit resolution, Theresa May's time behind the wheel mercifully has come to an end with the announcement that she will be leaving her post on June 7th. Not surprisingly this latest development has done nothing to shore up uncertainty in the future prospects for a Brexit resolution. Consequently, the GBP/ILS rate has been seriously roughed up of late due to all the instability; something we don't expect to change, at least until the next shoe drops with respect to who will be taking over the negotiations once Theresa May departs.
Overall, moving into the second half of 2019 some pundits are projecting a stronger shekel for the rest of the year. Recent analysis by Bank Mizrahi even indicates a striking similarity in currency market conditions to those of 2017 when the shekel appreciated by over 10% against the USD! Although we would be surprised to see strengthening of that magnitude again, it's still worth mentioning. One wild-card to keep an eye on now comes in the wake of Prime Minister Netanyahu's embarrassing failure to form a government, leading to new elections later this fall. While the humbling news may be less-than-positive on the whole, any perceived instability could actually translate into some weakening in the shekel in the short-term, which could certainly be music to the ears of those looking for more compelling exchange rates.
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Despite stumbling out of the gate to kick off 2019, marked by a drop of over 11% in the number deals in the first quarter, the Israel housing market continues showing signs of life. Since hitting its low point back in March of 2018, new sales have continued to stay on the rise, posting an uptick in the monthly average number of deals by almost 2.5%. The data, provided by the Central Bureau of Statistics represents an approximate 1% larger number than the monthly average from the period of July 2015 through March 2018. Furthermore, the Central Bureau of Statistics also reported that supply of new housing for sale also continues to drop, with 25,590 unsold new housing units at the end of the first quarter of 2019, the lowest number since May 2017.
Purchases made through the Ministry of Finance's Buyer Fixed Price Plan (Mechir Lamishtaken) made Netivot the Israeli city with the largest number of new apartments sold in the first quarter, numbering 382 of the 5,750 new housing units sold nationwide. Additionally, the southern region of Israel continues to be a leading area of Mechir Lamishtaken purchases, boasting an average of 250 deals per month. For more about the Buyer Fixed Price Plan (Mechir Lamishtaken) check out our free easy-to-understand infographic now.
It's been a good year thus far for the economy. In data reported by the Central Bureau of Statistics, Israel's Gross Domestic Product surged by 5.2% on an annualized basis in the first quarter of 2019. The impressive performance was fueled largely in part to a pedal-to-the-metal surge in vehicle imports, namely in those for private use which increased by nearly 600%, also on an annualized basis. Other sectors of the economy to experience significant growth included business output, as well as exports of both goods and services.
Going forward, however, it appears guarded optimism could be the theme for the rest of the year. Considering it is now mired in the deepest ties in its history to both the United States and China, Israel now finds itself in a place of potential vulnerability as a result the ongoing trade wars between the two economic titans. The risks of Israel's exposure have not gone unnoticed by the Bank of Israel Research Department, and International Monetary Fund (IMF), who have both recently reduced their 2019 growth forecasts for the Israel economy, along with Organization for Economic Cooperation and Development (OECD), who also revised their projection down to 3.1% from 3.5% for 2019, and even warned that tax increases and the elimination of many tax exemptions may be necessary in order to bolster waning government revenues.
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Ok everyone, consider yourself all caught up. Have a very prosperous month from IsraTransfer.