The USD to ILS exchange rate has shown marked weakness recently, driven primarily by expectations of aggressive interest rate cuts from the Federal Reserve in 2026. Analysts reported that the US dollar fell following a surprise drop in the consumer price index, with inflation decreasing from 3% to 2.7% in November. This decline has fueled sentiments that the Fed may begin reducing rates as soon as March 2026, impacting the USD negatively.
As of late December, the USD to ILS rate has dipped to near 90-day lows around 3.1861, approximately 2.4% below its three-month average of 3.2633. The market has traded within a relatively narrow range of 5.4%, indicating a period of consolidation amid uncertainty.
Conversely, the Israeli new shekel has strengthened significantly, reaching its highest level in three years against the USD. This appreciation is attributed to robust defense exports, increased foreign venture capital investments, and improved fiscal data. Furthermore, credit rating agency S&P Global recently upgraded Israel's credit outlook from "Negative" to "Stable," which reflects a lower risk premium associated with the country following geopolitical de-escalation.
UBS has notably revised its forecast for the USD/ILS pair, projecting the exchange rate to fall to 3.30 by Q2 2024. This outlook highlights expectations for continued improvement in Israel's economic fundamentals and reduced geopolitical risks, supporting a bullish view for the ILS.
With the current market sentiment favoring risk assets and given the Fed's potential for dovish actions, experts suggest that the USD could face additional downward pressure. Investors will be closely monitoring upcoming economic reports, particularly inflation prints and Federal Reserve communications, as these will inform the outlook for both currencies moving forward. The interplay between Israel’s strengthening position and the US dollar’s weakness suggests that businesses and individuals engaging in currency exchanges may find advantageous opportunities in the near term.
