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Last week I was talking about the intervention that the Bank of Israel made in the forex markets, and how it worked. Well, also in a small country like Israel, central bank intervention is short-lived. A lesson for the Swiss National Bank…

USD/ILS fell and fell, hurting Israeli exports, many of them to the US – the Israeli hi-tech industry. Stanley Fisher, Governor of the Bank of Israel, refused to let it happen, and began buying dollars early last week. While the dollar was collapsing in the world, it gained 4% against the Israeli shekel.

In my post Central Bank Intervention – the Israeli way, I argued that such an intervention can only work in small countries like Israel.

Well, this strong move can probably happen only in small countries, but it can’t last long. I then mentioned that  in Switzerland, the SNB’s intervention was indeed short lived, and provided an opportunity to buy the Swiss Franc.

Fisher stops buying bucks

This week was different in Israel. Stanley Fisher stated that he’ll stop the regular policy of dollar buying, and only intervene from time to time. Traders on the USD/ILS saw this dramatic statement as a white flag on behalf of the central bank.

USD/ILS plunged from 3.93 back down to 3.79. It already traded lower during Friday’s session.

While Fisher and the Bank of Israel intervene in the markets much more frequently than in Western countries, also their power is very limited. So, the next time that Swiss and Japanese bankers think of intervening in the markets to weaken their national currencies, they should think twice…

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