Bank of America predicts shekel weakening

If BoA’s forecasts are correct, over the next three months the shekel/dollar exchange rate will reach the level of 3.14 shekels per dollar.

The forecast is based on the US Federal Reserve tightening monetary policy with a rate hike, as well as a negative outlook for the S&P 500 – a fall on Wall Street will force Israeli institutional investors to sell shekels and buy dollars to adjust their portfolios.

The bank adds that investors incorrectly assess the strength of the risk facing the shekel at current price levels, and point out that the local currency is disconnected – in a negative direction – from the real economic environment:

“There are two main structural drivers for the dollar-shekel pair. The first is US equities, which is a more significant factor. The second is emerging market currencies. Both drivers point to a weaker shekel. In addition, the shekel appears overvalued relative to the current level of emerging market currency markets and the S&P 500 index.”