Market Eyes Clues On Whether Central Bank Will Act On Shekel

Spot USD/ILS operates slightly above neutral levels after posting a knee-jerk lower as Bank Hapoalim's chief economist said that the Bank of Israel could step in to shore up the shekel. The reaction was relatively limited but reflects lingering uncertainty around the outlook for the shekel. That being said, USD/ILS implied volatilities are off session highs.

• Hapoalim's Victor Bahar wrote that "if the depreciation of the shekel continues in coming weeks, the Bank of Israel may intervene in the foreign-exchange market, and for the first time sell foreign-exchange reserves."
• Sell-side analysts are divided as to whether the shekel's recent sell-off is overdone, which is the view recently put out by Wells Fargo analysts, who noted that the prospect of central bank intervention should soon boost the currency.
• J.P. Morgan said they see the announcement of a dollar-shekel swap facility as the most likely way in which the Bank of Israel could prop up the shekel, albeit they see the risk of a direct intervention.
• Goldman Sachs suggested that the outlook for the ILS will depend on whether the central bank's actions, but "it remains unclear if or when FX interventions will be part of the discussion."