Shekel Clings Onto Familiar Range Day After BoI Rate Decision

Spot USD/ILS trades +62 pips at 3.7055, keeping a familiar range after yesterday's on-hold BoI decision. Bulls look for a fresh attack on Jun 2 high of 3.7551. Bears keep an eye on the 200-DMA, which intersects at 3.5629.

• The Bank of Israel paused interest-rate action after ten consecutive hikes, while staying on alert for inflationary risks. The central bank estimated that shekel depreciation boosted inflation by 1-1.5pp, with the currency pressured by political turmoil surrounding the contentious reforms of the judiciary.
  • Citi found the BoI decision less hawkish than it appeared on first glance. They no longer expect additional hikes and see a risk of rate cuts starting in 4Q2024.
  • Goldman Sachs write that the BoI left rates unchanged but deployed relatively hawkish guidance, refusing to rule out further hikes. They expect the BoI to keep its hawkish bias until there is more clarity on the government's judicial overhaul plan, which has sapped strength from the shekel.
  • JP Morgan notice slight hawkish bias in communications, including a warning that the BoI could hike again if inflation surprises to the upside. They expect the policy rate to remain unchanged through end-2023, with higher DM rates and potential inflation surprises keeping risks skewed to the upside. They push their rate-cut call back to 2Q2024 from 1Q2024 previosuly.
• Anti-judicial overhaul protesters took it to the streets again, clashing with the police, as they launched a "day of disruption." Diaspora Minister Amichai Chikli accused opposition leaders of coordinating their criticisms of the judicial reforms with the Biden administration, which may further weigh on bilateral relations with the US.