Shekel Weakness To Continue

The Israeli shekel has depreciated sharply against the US dollar and euro concomitant with global risk aversion in financial markets, and we expect the currency to remain weak over the coming months. With a slew of uninspiring Q211 GDP figures released by the US and large eurozone economies in recent weeks, investors have flocked out of emerging market investments and into safe-haven assets such as gold, US Treasury securities, and the Swiss franc. Additional factors contributing to the shekel's weakness include elevated regional and domestic political risks, a slowdown in exports (due in large part to weakness in Western economies), and the increasing probability that further hikes in Israel's policy rate are off the cards for the rest of 2011.

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