Bloomberg News

Shekel Drops to Four-Month Low on Concern Europe to Hurt Growth

May 14, 2012

The shekel weakened to the lowest in four months as demand for riskier assets waned on concern a worsening fiscal crisis in Europe may slow Israel’s economic growth.

The shekel dropped 0.4 percent to 3.8323 a dollar at 11:20 a.m. in Tel Aviv. It earlier fell to 3.8357, the lowest since Jan. 17 and is down 1.8 percent this month, the second-best performer among the 10 most-active currencies in Europe, the Middle East and Africa, according to data compiled by Bloomberg. The Dollar Index (DXY) gained for an 11th day as the European debt crisis boosted demand for safer assets.

Greece’s political deadlock looked set to continue as President Karolos Papoulias prepared for another day of discussions with political party leaders on forming a national unity government. The standoff has reignited concern the country will renege on pledges to cut spending and leave the euro area. Israel exports almost 60 percent of its goods to the euro region and the U.S.

“The shekel is losing its attractiveness on the back of a slowing global economy and uncertainty about the European debt crisis, which is affecting Israel’s export-driven economy,” said Adiv Kabiri, senior currency dealer at Gift Asset Management Ltd. in Tel Aviv. “In case the crisis in Europe deteriorates the Bank of Israel may decide to lower interest rates to boost growth.”

Exports Slow

The yield on the 5.5 percent benchmark bonds due January 2022 retreated for a second day, falling two basis point, or 0.02 percentage point, to 4.51 percent. The Finance Ministry plans to sell a combined 1.65 billion shekels ($431 million) of debt at an auction today. It will offer 250 million shekels of the 2022 bonds and 350 million shekels of inflation-linked bonds due May 2017.

Exports fell in April to the lowest level since December 2010, the Jerusalem-based Central Bureau of Statistics said yesterday. The economy will expand an annualized 2.5 percent in the first quarter, according to the median estimate of 11 economists surveyed by Bloomberg. The data is due to be released on May 16.

One-year interest rate swaps, an indicator of investor expectations for rates over the period, fell two basis points to 2.45 percent. The two-year break-even rate, the yield difference between inflation-linked bonds and fixed-rate government bonds of similar maturity, dropped four basis points to 282, implying an average annual inflation rate of 2.82 percent.

The Tel-Bond 40 index of corporate bonds retreated less than 0.1 percent to 265.22.

To contact the reporter on this story: Sharon Wrobel in Tel Aviv at swrobel4@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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