ILS: Shekel Regains Poise Ahead Of Widely Anticipated On-Hold Rate Decision

USD/ILS has inched higher following its sharp two-day sell-off into the weekend. The pair last deals at 3.6939, up 64 pips on the session, as participants await the announcement of the Bank of Israel's rate decision. Unanimous consensus sees the central bank leaving the base rate unchanged at 4.50%. Should USD/ILS manage to break above Jul 1 high of 3.7810, bulls could look for further gains. Bears see Jun 4 low of 3.6521 as their initial target.

• BNY Mellon suggest that the "surprisingly soft inflation print in May could point to some scope for easing expectations by the BoI to come through but inflation continues to push against the 3% headline level on a realised and forecast basis," and they "expect the central bank to continue pushing back against such prospects."
• HSBC "continue to see end-2024 and end-2025 inflation at close to 2.5% and 2.0%, respectively, and this outlook would have led to a faster pace of policy easing under normal circumstances," but geopolitical uncertainty is "playing a significant role in the BOI's decision to delay easing." They expect cuts to  resume in 4Q24, but flag the risk of a longer pause.
• JP Morgan write that with the fundamental picture broadly unchanged since the previous meeting, "the main constraint for the BoI remains high geopolitical uncertainty." They note that "perceptions about potential war in the north have worsened in recent weeks, pressing markets, and the BoI will likely continue prioritizing stability in this environment."
• Elsewhere, Israel's cabinet gave a nod to a 1% budget cut for all ministries save for the Defence Ministry in order to finance the evacuation of residents in the north and south of the country for two more months. The price tag attached to the planned aid measures is said to be around ILS1bn.