The USD to ILS exchange rate is experiencing downward pressure due to a combination of factors affecting both currencies. Analysts note that the US dollar remains relatively weak, primarily owing to an increasing consensus in the market predicting aggressive Federal Reserve rate cuts beginning in 2026. This expectation comes as inflation data supports a dovish outlook, leading to a diminished yield advantage for the dollar. The US Dollar Index (DXY) has fallen as risk sentiment improves globally, encouraging investment in higher-yield assets rather than the safe-haven dollar.
Recent economic data out of the United States has yielded mixed results. While there are signs of slowing growth, the labor market remains robust, complicating the Fed's decision-making process regarding interest rates. However, forecasts suggest that continued softening in the USD is likely until clearer signals emerge from the Fed, especially following important CPI and PCE prints due in the coming weeks.
On the other hand, the Israeli new shekel (ILS) has shown signs of strength, appreciating approximately 9.3% against the USD in recent months. A recent decline in Israel's inflation rate to 2.5% now aligns within the central bank's target range, which could lead the Bank of Israel to consider rate cuts. Additionally, the recent ceasefire in Gaza has contributed to a reduction in Israel's geopolitical risk, further bolstering the shekel.
Current exchange rate data indicates that USD to ILS is trading at 14-day lows around 3.2241, which is approximately 1.8% lower than its three-month average of 3.2827. This stability suggests a trading range from 3.2003 to 3.3576 over recent weeks, indicating subdued volatility but an overall trend of the shekel strengthening against the dollar.
Analysts at UBS have revised their USD/ILS forecasts downward, predicting further strengthening of the shekel due to improved economic fundamentals in Israel and a waning risk premium linked to geopolitical tensions. With a risk-on sentiment prevailing in the markets, the outlook for the USD remains cautious, suggesting limited upside potential for the greenback against the ILS in the near term.
