Goldman Sachs, one of the world’s powerhouses of banking and investment, shocked the money markets on Monday by predicting that the New Israel Shekel (NIS) would rebound and settle at an exchange rate of at least 3.6 Shekels to one US dollar within one year. In a report made by Israel’s daily business publication Globes, the paper stated that Goldman Sachs asserted that this is because Israel’s macroeconomic fundamentals remain strong; however, geopolitical risk will continue to be the main driver of the shekel.
After the October 7 Hamas terror massacre and the start of the Iron Swords War against Hamas terrorists in Gaza, the Shekel plummeted to below the four Shekel to the Dollar mark, its lowest drop in years. The drop came due to all of the uncertainty after the attack.
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Before October 7, 2023, the Shekel had been so strong – sometimes getting close to even breaking through the three to the Dollar mark – that many were concerned this would harm Israel’s economy. It was not that the US Dollar was weak; the Shekel gained against all major currencies.
The problem with that is a strong Shekel makes it harder for firms to bring in foreign investments since foreign currencies do not go as far. And while Israelis enjoy the drop in prices of imports that this brings, this hurts the economy by increasing trade deficits.
That being said, Israel does not want the Shekel to be too weak and so settling at 3.6 to $1 sounds good.
In a surprising turn of events during the last week of October, the Shekel outperformed other emerging market currencies, appreciating by 2.5% against the US dollar. This significant gain occurred despite the general trend of emerging market currencies weakening against the dollar ahead of the US presidential election, as observed by US investment bank Goldman Sachs.
Goldman Sachs explained this rise in the Shekel’s values as being due to “a reduction in geopolitical risk after the weekend as Israel’s targeted strikes avoided Iran energy facilities, which also led to a large fall in oil prices.”
“Looking ahead, geopolitical risk will remain the primary driver of the Shekel, with some gains already eroding as the week has gone on and risks rise again over the weekend,” added Goldman Sachs. “But outside of this, we think macroeconomic fundamentals (and thus valuations) and monetary policy remain currency supportive.”
In other words – regional political stability means financial/economic stability which is good for everyone on all sides of the world financial markets.
So, the sooner the ongoing war in Gaza the better it will be for Israel’s economy and the New Israel Shekel.
