Israeli Shekel Recovers Post-War Losses as Bank of Israel's Intervention Attracts Investors Back to Markets

Central bank sells $8.2 billion in foreign currency to salvage shekel as local investors readjust focus on the economic fundamentals and increase asset allocation to domestic stocks and bonds.

In response to the October 7 Hamas attack, the Bank of Israel announced a flurry of support measures, including the offering to sell up to $30 billion in foreign currency and the provision of $15 billion of liquidity to the market through swap transactions. Data shows it spent less than a third of the pledged amount.
Despite initial fears of a wider regional conflict involving Hezbollah and a predicted economic downturn, the Israeli Shekel has made a significant recovery, regaining all losses experienced during the war period. The currency is now trading back to a pre-war level of 3.86 to the greenback.
The Central Bank's intervention has also led to the recovery of Israel's stock and bond prices, with risk indicators such as credit default swaps (CDS) still showing signs of caution. Local investors are gradually refocusing on the country's economic fundamentals and redirecting their asset allocation to domestic markets.
The Bank of Israel's aggressive action of selling $8.2 billion of foreign currency out of the pledged $30 billion in October has been credited as one of the main reasons for the market confidence rebound. The country's cost of borrowing, as measured by the benchmark 10-year bond yield, dropped back to 4.22%.
Despite the central bank's intervention leading to a decrease in the country's foreign reserves to $191.2 billion at the end of October, their lowest level in a year, the government has approved a war compensation package to support people and businesses affected by the conflict, including housing for evacuees and state-backed loans.