The investment giant that is “shorting” the shekel, and the reasons

In a document published by the investment bank, it was stated that “the underperformance of technology stocks and the increase in geopolitical risks in the Middle East were two of the main drivers of the market in recent times. The Israeli shekel is particularly sensitive to these two factors, which in our opinion makes short positions on the shekel an attractive hedging tool in the foreign exchange market.”

The bank also wrote that “in addition to the reactivity of the shekel to these factors, we believe that a long position on the dollar/shekel is an attractive hedge, due to the current pricing level of the shekel. According to our GSDEER model, the shekel is overpriced by 13% against the dollar. Added to this is the slightly negative carrying cost of the shekel, which is in contrast to other currencies in emerging markets that have High beta, which are underpriced and/or benefit from higher interest spreads.”

In the last three months, the shekel has strengthened against the dollar by over 4%, while about a week and a half ago it briefly fell below the level of NIS 3.07 – its strongest level against the dollar in 30 years.

Along with the weakening trend of the dollar in the world, the strengthening of the shekel in recent months is recorded against the background of a tide in the stock exchange in Tel Aviv, huge deals in high-tech and the defense industry and a trend of investors moving from foreign routes to local routes.

The risks of betting against the shekel

Along with the recommendation, Goldman Sachs also described the risks of betting against the shekel. “The main ‘global’ risk for the short position on the shekel as a hedging tool is a sharper drop in the value of the world dollar than we anticipate, or alternatively that geopolitical results will turn out to be a ‘clearing event’ for Middle East risks, after a short-term wave of declines.

“On the ‘local’ side, one should monitor a positive impulse from the growth forecasts of our economists, which are higher than the consensus, or an increase in the hedging ratios of the local institutions (although we note that these ratios remain essentially unchanged during 2025).”

“However, we anticipate that the local factors will turn out to be a headwind for the shekel. As far as monetary policy is concerned, the strength of the shekel raised concerns about the competitiveness of exports; we found that the Bank of Israel’s past interventions in the foreign exchange market responded to deviations of export growth from the accepted trend. Finally, after a calm in the political noise following the ceasefire agreement, we believe that the growing risks of geopolitical escalation or an increase in local uncertainty are not properly reflected in the current exchange rate,” the bank concluded.