UBS and Goldman Sachs Forecast Israeli Shekel Appreciation: Currency Market Insights

Israel’s economy is getting a boost from the ceasefire deal the country reached with Lebanon and Hezbollah last week. Major financial firms like UBS and Goldman Sachs are now predicting a strengthening of the Shekel against foreign currencies. This comes after the Fitch Ratings Agency issued a positive outlook on Israel’s economy last week in light of the ceasefire.

An increase in the value of the Shekel will surely be good news to Israeli consumers who have been suffering from inflation that resulted from certain politically motivated boycotts, like by Turkey, and economic problems caused by the ongoing war in Gaza. A stronger Shekel will make imports cheaper, lowering prices.

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However, Israel does not want the Shekel to get too strong. Once the war ends it will want to make the country as attractive as possible to foreign tourists, who have stayed away for more than a year now. It will also want to keep the country attractive to foreign investors in Startup Nation firms by ensuring their Dollars and Euros go as far as possible.

UBS has released a report analyzing the potential impact of the Israel-Lebanon ceasefire on the Israeli Shekel. The report, titled “Lebanon-Israel ceasefire, where do we go from here?”, suggests that a sustained ceasefire could significantly strengthen the Shekel against the US Dollar.

UBS analysts believe that the ceasefire agreement signals a major de-escalation of tensions between Israel and Lebanon. They predict that if the ceasefire holds, the Shekel-Dollar exchange rate could improve from the current NIS 3.64/$ to a range of NIS 3.4-3.5/$. However, they emphasize that this forecast relies on a complete cessation of hostilities on all fronts.

Goldman Sachs, another prominent investment bank, shares UBS’s optimistic outlook for Israel, particularly the Shekel. In a recent report on the global forex market, Goldman Sachs highlighted the significant impact of Middle Eastern geopolitical developments on the US Dollar-Shekel exchange rate. The bank noted that the recent declaration of a ceasefire in Lebanon has boosted the Shekel’s performance, making it one of the top-performing currencies.

Not only that, but Goldman Sachs also said about the Shekel, “It is still not expensive. The macroeconomic fundamentals indicate a potential for a further strengthening of the Shekel if Israel’s risk premium continues to fall.”

In other words, expect the Shekel to continue strengthening against foreign currencies.

Ratings agencies Fitch and Moody’s have both released reports assessing the impact of the Israel-Hezbollah ceasefire on Israel’s economy. Fitch, in particular, suggests that a sustained ceasefire could reduce fiscal risks. However, the agency cautions that ongoing developments in Gaza and Iran will remain crucial factors influencing Israel’s economic and fiscal trajectory.

Fitch predicts that the conflict in Gaza will persist into 2025, albeit with varying levels of intensity. This prolonged conflict could lead to continued high military spending, disruptions to production in border regions, and negative impacts on sectors like tourism and construction.