The USD to ILS exchange rate has been influenced significantly by recent developments in both the US and Israeli economies. Analysts note that the US dollar has softened following a surprising drop in the consumer price index, indicating retreating inflation which reinforces expectations for monetary easing from the Federal Reserve in 2026. A mixed array of economic data reflects a cooling growth trajectory, with manufacturing indicators showing weakness and consumer spending slowing down. Despite this, the labor market remains resilient, which complicates the Fed's path on rate cuts.
Consequently, market sentiment is leaning towards multiple rate cuts anticipated between March and June 2026. Analysts predict that a dovish Federal Reserve could further diminish the dollar's yield advantage, thus contributing to ongoing downward pressure on the USD. The current environment has led to a pullback in the US Dollar Index (DXY) from its recent highs, as trade dynamics shift towards risk-on attitudes, benefiting equities and reducing the dollar's haven demand.
Conversely, the Israeli shekel has displayed notable strength, recently appreciating by approximately 9.3% against the dollar in the second quarter of 2025. This trend follows a decline in Israel's annual inflation rate, which fell to 2.5%, enticing speculation about potential interest rate cuts from the Bank of Israel. UBS analysts have revised their forecasts for the USD/ILS exchange rate downward, citing improved investor sentiment and diminished geopolitical risks following a ceasefire in Gaza, which contributed to a reduced risk premium for the shekel.
As of the latest data, the USD to ILS rate is at 30-day lows near 3.2068, approximately 1.9% below its 3-month average of 3.2698, indicating a stable trading range recently. Given these factors, traders and businesses conducting international transactions should be mindful of the imminent risks associated with the dollar's potential weakness and the Israeli shekel's upward momentum due to better economic fundamentals.
