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Despite Gaza War, The Shekel Continues to Rise

MONEY ILLUSTRATION

 

As yet another ceasefire was broken on Friday, the shekel continued its move upward compared to the dollar and other currencies. And despite a dip in Israeli tech stocks, the general trajectory has been upward, as demand for Israeli technology and natural gas drilling is driving the shekel higher. Israeli stocks Checkpoint (CKP) and Nice Systems (NICE) have generally been performing well, although Checkpoint fell 3.5% on Friday and Nice shed 29 cents. Elbit Systems (ESLT) has risen 2.5% since hostilities began on July 8th.

A rising currency level may signal strength in an economy, but it is a disadvantage, because it makes goods exported less competitive. Bank of Israel has been investing heavily in the U.S. dollar and other foreign currencies to keep the shekel from rising too far and too fast. However, this devaluation of the shekel might have negative consequences, as the war is going to take a toll on the Israeli economy, causing the GDP to decline an estimated 0.5% in 2014. Defense expenses will cause an increase in taxes if the government hopes to maintain the deficit target of 2.5%, and tax increases will impact consumer spending.  So while natural gas and Israeli tech gains may have otherwise been a boon to the Israeli economy, it seems that, the best case scenario, is that these advantages might just offset the economic problems created by the recent military conflict.

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