Central Bank Intervention – The Israeli Way
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Central Bank Intervention – The Israeli Way

The Israeli Central Bank refused to accept the collapse of the dollar at the beginning of the week, and sent the local currency down by 4%, when the dollar lost ground everywhere. This can happen only in small countries.

USD/ILS is a currency pair that doesn’t receive high volumes or much attention. Israel is a small country that is still the center of an ongoing conflict. Despite the conflict, the economy is doing rather well.

In the past year and a half or so, the local currency, the New Israeli Shekel, was doing much better than the economy. It made gains against most currencies in the world. The “normal rate” for USD/ILS is around 4 shekels per dollar.

Last July, when EUR/USD was above 1.60, USD/ILS fell as low as 3.20. The Israeli central bank couldn’t seeing Israeli exports (especially hi-tech to the US) suffer, and began intervening on a regular daily basis.  The dollar eventually went higher, but mostly due to it’s general strengthening worldwide.

This week’s collapse was met with even stronger resistance. Stanley Fisher, the governor of the Bank of Israel, intervened immediately, and sent the dollar from 3.77 to 3.93. He bought about 300 million dollar to make this happen, against the world trend. Naturally, EUR/ILS jumped even higher.

Yet again, the intervention wasn’t necessary after the dollar made a comeback on Friday.

In many interviews during the week, Fisher said that this policy of dollar buying couldn’t last forever, yet he said that he was willing to intervene yet again.

Contrary to big economies that enjoy high trading volumes on their currencies, this intervention will probably last. The “market forces” aren’t that strong in Israel.

In Switzerland, the SNB’s intervention was indeed short lived, and provided an opportunity to buy the Swiss Franc. In Israel, this move means that the shekel won’t bounce back. Someone is guarding it…

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.