Mighty shekel could boost shoppers and travelers, but many will miss out on bonanza |
Over two-and-a-half years of war and its aftermath, one surprising bright spot has been the unusually muscular shekel, which on Thursday was at one of its strongest levels since the mid-1990s.
But the currency’s appreciation, which has picked up sharply since April, could prove a double-edged sword for an economy dependent on exports and high-quality human capital.
While the overly strong shekel has a deflationary force as it makes imports cheaper, restrains price rises and credit costs for consumers, and enables the Bank of Israel to lower interest rates, it also presents its own set of problems for Israeli manufacturers and businesses reliant on exports and earning in dollars.
The risk is that the shekel’s success story could make Israeli goods and services more expensive abroad, dampening one of the local economy’s most important engines of growth and curbing employment.
“The trend of a stronger shekel is not a technical or temporary phenomenon, but a direct reflection of solid fundamentals driving foreign investments in Israeli companies and capital into the country and the local stock market, amid confidence for a rapid recovery of the economy,” Meitav Investment House chief economist Alex Zabezhinsky told The Times of Israel. “The strong currency is making imports of raw materials, and many goods such as clothing, furniture, equipment, electronic appliances, as well as foreign travel, cheaper.”
“However, a strong shekel is also making Israeli goods less competitive, while the companies producing the goods in Israel are paying expenses, including salaries in shekels, which in turn is affecting their profits,” Zabezhinsky said.
On the eve of the breakout of war with the Hamas terror group on October 7, 2023, the shekel was already slumping, and by late October, with the country and region still in shock over the devastating attack, it had fallen to an 8-year-low and was trading close to NIS 4 against the dollar.
Just a month later, though, the local currency had recovered, and more than two years later, it is now trading at a four-year high of around NIS 3.14 against the greenback. The local currency has strengthened against both the dollar and the euro despite an economy strained by ballooning war costs and a growing debt burden.
Israel’s military successes have helped buoy investor optimism, strengthening the shekel. The currency saw sharp gains following targeted strikes that eliminated most of the Hezbollah leadership, including its leader Hassan Nasrallah and another boost following Israel’s campaign against Iran in June.
The Bank of Israel attributed the shekel’s 6 percent appreciation against the dollar in the last six months of 2025 to the decline in Israel’s risk premium, which it said fell markedly after the Iran war in June and continued to decline after the declaration of a ceasefire in Gaza in October.
Israel’s risk premium as perceived by investors is now almost back to its level just before the Hamas war, the central bank said in a report earlier this month.
In the first two weeks of 2026, the shekel strengthened 1.6% against the dollar despite tensions over a potential US attack on Iran and the possibility of Tehran’s retaliation against Israel, according to data by the Tel Aviv Stock Exchange.
“How surprising that even when it is, or was thought that the Iran conflict........