USD/ILS: UBS forecasts shekel strength due to recovery in Israel, Fed easing

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UBS forecast an appreciation of the Israeli shekel against the US dollar, expecting a decline in the geopolitical risk premium.

The shekel briefly breached the 3.80 level against the dollar due to recent tensions between Iran and Israel, as well as the ongoing conflict with Hamas. UBS analysts expect this pressure to ease, setting the stage for the shekel to take advantage of Israel’s economic recovery and the Bank of Israel’s (BoI) cautious policies.

The financial institution predicts that the start of the monetary policy easing cycle by the Federal Reserve will additionally support the shekel. As geopolitical risks subside, UBS expects the shekel to strengthen and provided its quarterly exchange rate forecasts.

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Projections indicate a gradual appreciation of the shekel, with the exchange rate expected to reach 3.60 at the end of the next quarter, then 3.50, 3.45 and stabilizing at 3.45 by the first quarter of 2025.

The UBS report highlights the resilience of the Israeli economy, which appears ready to recover from the effects of geopolitical events that have recently influenced currency fluctuations. The shekel’s projected gains reflect confidence in the country’s economic management and the anticipated shift in U.S. monetary policy.

The outlook for the shekel is based on the assumption that the risk premium, which has been raised by recent confrontations, will decline over time. This risk reduction is expected to be a key driver of the shekel’s strength in the coming quarters.

Overall, UBS’s analysis points to a brighter future for the Israeli shekel, underpinned by a solid economic recovery and favorable monetary conditions.

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