Heightened Political Risk Keeps Shekel Under Pressure, Implied Vols Extend Rally

The Israeli shekel underperforms all of its EMEA peers at typing with the domestic political crisis still unresolved, while violent clashes in the West Bank escalate. Spot USD/ILS rallied to ILS3.6935 this morning, the highest point since early 2020, before easing off.

• The rate last operates +92 pips at ILS3.6725, off the cyclical high of ILS3.6935. The rate has been struggling to close above the 76.4% retracement of the 2020 - 2021 sell-off at ILS3.6892, despite briefly piercing that level in the recent days.
• USD/ILS implied volatilities continue to creep higher, with one-week and one-month tenors hitting their best levels since March 2020. One-year implied volatility has rebounded after a temporary consolidation, moving its best levels since early November.
• Around 160,000 people showed up to a protest against PM Netanyahu's contentious overhaul of the judiciary on Saturday, which opinion polls show is opposed by around two-thirds of the voters. The government remains determined to adopt the legislation despite fierce opposition from multiple quarters.
• Meanwhile, Israeli settlers went on a rampage in the West Bank, setting cars and homes ablaze, after an earlier terror attack by a Palestinian gunman. Chairman of the Knesset's National Security Committee Zvika Fogel of the ultra-right Otzma Yehudit party threw his weight behind the rioters.