Recent forecasts for the USD/ILS exchange rate indicate a trend of weakening for the US dollar against the Israeli shekel. Analysts report that the USD has encountered downward pressure largely due to growing expectations that the Federal Reserve will implement rate cuts sooner than previously anticipated, with some market projections suggesting multiple cuts beginning as early as the first half of 2026. This sentiment follows a slew of mixed economic data from the US, where manufacturing indicators show signs of slowing and consumer spending appears to be decelerating, despite a resilient labor market.
At present, the USD is trading at approximately 3.2300 ILS, marking a 1.3% decline from its three-month average of 3.2732. The currency pair has demonstrated a stable trading range of 4.9%, oscillating between 3.2003 and 3.3576. Such stability indicates a cautious market sentiment as traders react to both domestic economic indicators and global trends.
In contrast, the Israeli shekel has gained strength amidst declining inflation rates and improved investor sentiment related to geopolitical stability. Recently, the annual inflation rate in Israel fell to 2.5%, positioning it well within the government's target range. This decline could prompt the Bank of Israel to consider interest rate cuts, which, alongside a recent ceasefire in Gaza, has reduced the shekel's risk premium and contributed to a stronger currency.
Furthermore, UBS has revised its forecasts downward for the USD/ILS exchange rate, anticipating further appreciation of the shekel based on Israel's positive economic fundamentals and diminishing geopolitical risks. The shekel's performance has already been noted as having appreciated by approximately 9.3% against the USD in the second quarter of 2025.
Looking ahead, analysts suggest that the relationship between the USD and ILS will continue to be influenced by the Fed's monetary policy shifts and Israel's economic indicators. Should the Fed signal a more aggressive path toward rate cuts, the pressure on the USD is likely to persist. Conversely, any signs of economic weakness or delayed cuts may provide temporary support for the dollar, but overall sentiment leans toward a stronger shekel in the coming months.
