Shekel Is One Of World's Worst-Performing Currencies Today Amid Domestic Political Drama

The shekel is one of the worst performers among all 151 currencies tracked by Bloomberg after the Knesset voted the first major element of the government's judicial overhaul into law, derailing last-ditch efforts by some moderate coalition members to engineer some sort of political compromise. The outcome of today's vote raises Israel's political risk premium, potentially in more than one way, generating fresh headwinds for local assets.

• Firstly, the adoption of controversial legal solutions is set to pour fuel on existing social unrest, with protest leaders vowing to "fight to the end." Different forms of protest actions may escalate going forward, including the refusals of IDF reservists to report for duty. Continued public unrest, which involves members of Israel's security apparatus, poses a direct risk to the country's readiness to respond to geopolitical threats.
• Secondly, the outcome of today's Knesset proceedings demonstrates that the hardliners hold much sway in Israel's ruling coalition, resisting pressure from the moderates (who showed acquiescence and eventually toed party line), the opposition, as well as various corners of the civil society and state agencies. This suggests that the hardliners may have enough momentum to press ahead with other controversial judicial reforms in their relatively radical form.
• Spot USD/ILS last deals at 3.6610 after rallying as high as to 3.6870. Bulls look for a move through Jun 30 high of 3.7308 and towards Jun 2 cycle high of 3.7551.