#Why Did the Bank of Israel Intervene in the Forex Market?
The Bank of Israel recently intervened in the foreign exchange market to stabilize the shekel, purchasing $801 million in foreign currency. This represents the bank's first direct currency intervention since 2022. The decision highlights the impacts of a strong shekel on Israel's export-driven economy and the pressure Israeli companies face as they earn revenues in foreign currencies.
The shekel was trading near its strongest level against the US dollar in 33 years, which, while impressive, was creating significant challenges for local businesses. Companies that earn revenue in foreign currencies found themselves dealing with diminished buying power in shekels, complicating financial operations at home.
#What Are the Changes in Foreign Exchange Reserves?
By the end of May 2026, Israel's total foreign exchange reserves hit a record high of $238.681 billion, a $2.953 billion increase from the previous month. The direct purchases made by the Bank of Israel explain only a portion of this figure. The majority of the increase, approximately $2.685 billion, resulted from revaluation gains—meaning the assets already held by the central bank appreciated in value due to changes in global currency markets and asset values.
On June 7, the Bank of Israel clarified that these actions were not aimed at pegging the shekel to a specific exchange rate but rather to ensure the market operates smoothly during a challenging period.
#Why Is the Shekel So Strong?
The recent rise of the shekel stems primarily from ongoing foreign investment in Israel's booming technology sector. As investors look to acquire stakes in Israeli startups and companies, they convert their dollars into shekels, amplifying demand. This can create complications for companies with revenue largely generated from foreign sales, as they face higher costs when converting their dollar income to pay expenses in shekels.
#What Implications Does This Have for Investors?
The intervention indicates a threshold of tolerance for the central bank regarding the shekel’s strength. For investors holding Israeli assets or engaging in shekel trading, the $801 million intervention serves as a cautionary signal. While the overall effects are broadly favorable for equity investors in Israeli tech companies—since a weaker shekel can protect export profits—the Bank of Israel has not committed to any specific exchange rate target.
In addition, the question of inflation is critical. A strong shekel tends to dampen import prices, offering a natural check against consumer inflation by lowering the costs of foreign goods. If the central bank's actions succeed in weakening the currency, the benefits to controlling inflation could diminish, creating a complex situation for future monetary policy decisions. The impressive reserve of $238.681 billion gives the Bank of Israel ample resources to engage further if necessary.