The USD/ILS exchange rate continued its strong downward trend, and is hovering near its lowest level in years, even as geopolitical risks in the Middle East have risen. The pair was trading at 3.0864 on Thursday, down sharply from 4.0858, its highest level since October 2023.
Israeli Shekel Rally Accelerates Despite Growing Risks
The USD/ILS exchange rate continued falling this year as the US dollar retreat gained steam. This retreat happened even as geopolitical risks in the Middle East rose.
President Donald Trump has amassed a large military presence in the Middle East and warned that he may launch an attack on Iran in the near term. He reiterated the threat during his State of the Union speech on Tuesday.
Trump has also hinted that he will launch a limited attack on Iran to force the leaders into a deal. Iran, on his other hand, has warned that it will respond forcefully to any attack.
Therefore, there is a risk that Israel will face major attacks if a war breaks out in the region, a move that may impact the economy.
Recent data shows that Israel is doing well, with inflation falling and economic growth continuing. The report showed that the headline Consumer Price Index (CPI) dropped to 1.8% in January from the previous 2.5%. Core inflation, which excludes the volatile food and energy prices, dropped to 1.97% from the previous 2.65%.
More data showed that the country’s unemployment rate has stabilized at 3.1%, lower than the US 4.3%. Also, the economy expanded by 1% in the fourth quarter, helped by key areas like technology.
The Bank of Israel has delivered several rate cuts since last year. It brought the benchmark interest rate to 4% from last year's high of 4.5%. Analysts expect the bank to cut rates more times this year as inflation falls.
USD/ILS Technical Analysis
The weekly timeframe chart shows that the USD/ILS exchange rate has been in a strong downward trend in the past few years. It has slumped from a high of 4.0860 in October 2023 to the current 3.0865.
The pair has remained below all moving averages and the Supertrend indicator. It is also hovering near the crucial support level at 3.0431, its lowest level in November 2021.
There are signs the pair has formed an inverse cup-and-handle pattern, which often leads to more downside. Therefore, the most likely scenario is where it continues falling, potentially to the key support level at 3.00.