Israel Shekel Slips vs Dollar on Iran, Hezbollah Attack Concerns

An Israeli shekel note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo
An Israeli shekel note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo
TT

Israel Shekel Slips vs Dollar on Iran, Hezbollah Attack Concerns

An Israeli shekel note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo
An Israeli shekel note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo

Israel's shekel slipped as much as 1.5% against the dollar and Tel Aviv stocks shed more than 1% on Monday, with investors becoming increasingly worried over a possible attack on Israel from Iran and Hezbollah.

The shekel stood at 3.77 per dollar by 1255 GMT, versus a rate of 3.72 on Friday but off an earlier intraday low of 3.78.

Israel shekel implied volatility gauges have risen sharply in recent days, with the three month measure hitting nearly 11%, its highest level since November, data from Fenics showed.

"We mostly remain elevated on Iran, with that also generating some of the volatility," said Mizrahi Tefahot Bank chief strategist Yonie Fanning, Reuters reported.

Since the beginning of August, the shekel has firmed 0.1% against the dollar but the currency has weakened 5% over the past 12 months. Emerging market currencies have struggled more widely this year against a broadly stronger dollar.

"The shekel is struggling to hold on to last week's gains amid rising market concerns that an attack by Iran on Israel could be imminent, based on comments from various officials from both sides," said Piotr Matys, senior FX analyst at InTouch Capital Markets.

Israel's currency has been on a roller coaster ride since the start of the month. It had weakened to 3.85 per dollar on Aug. 6 following concerns that Iran and its proxy Hezbollah in Lebanon would retaliate for Israel killing senior Hezbollah and Hamas officials, but the shekel moved back to 3.72 last week on efforts by the United States, UK, France and Germany to prevent attacks.

On Friday, an Iranian Revolutionary Guards deputy commander was quoted as saying by local news agencies that Iran was set to carry out an order by Supreme Leader Ali Khamenei to "harshly punish" Israel over the assassination on July 31 of the leader of Palestinian group Hamas in Tehran.

Israeli Defense Minister Yoav Gallant told US Defense Secretary Lloyd Austin on Sunday that Iran was making preparations for a large-scale military attack on Israel, according to a report.

"Expectations of a ceasefire are low and declining and the spectre of an Iranian retaliation remains," said Hasnain Malik, head of equity research at Tellimer.

Tel Aviv share indices were down between 1.25% and 1.5%.



Urgent Financial Tasks Await Lebanon’s Emerging Government

Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
TT

Urgent Financial Tasks Await Lebanon’s Emerging Government

Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)

A broad internal consensus, encompassing both political and economic dimensions, is taking shape to adopt the principles outlined in the presidential inauguration address as the foundation of the new government’s program and ministerial statement. This approach aims to sustain Lebanon’s immediate and strong positive momentum, which is reinforced by widespread support on both Arab and international levels.

Economic bodies and professional unions representing business sectors have openly expressed their relief and full support for the strategic directions set by President Joseph Aoun following his election. However, they have made it clear that maintaining this positive momentum depends on the formation of a reform-oriented rescue government, composed of competent, experienced, and honest ministers. This government must also collaborate constructively with the president.

According to a senior financial official, the rescue mission will be challenging due to years of governmental inaction and constitutional voids, which led to a deterioration in public sector operations and the accumulation of economic, financial, and monetary crises over the past five years. These challenges were further compounded by a devastating war, which inflicted severe human and financial losses estimated at approximately $10 billion, thereby worsening the country’s financial gap, now estimated at $72 billion.

Economic and banking circles are looking to the new government to swiftly capitalize on extensive international support by restoring trust and reestablishing financial channels between Lebanon and its regional and international partners. Key to this effort are explicit and transparent commitments to combating illegal economic activities, corruption, smuggling, money laundering, and drug trafficking. In parallel, the government must prioritize strengthening judicial independence and implementing strict controls over land, sea, and air borders.

The national consensus evident in the presidential election, according to Mohammad Choucair, head of Lebanon’s economic associations, paves the way for constructive collaboration among political factions. This collaboration is crucial for addressing challenges, rebuilding the state, and benefiting from renewed international and Arab—particularly Gulf and Saudi—interest in Lebanon. Choucair emphasized the importance of normalizing relations with Gulf nations, supporting Lebanon’s recovery, and providing resources for reconstruction efforts.

One of the urgent tasks for the new government, according to the financial official, is revisiting the draft 2024 state budget, which was previously submitted to parliament. Adjustments are necessary to address fundamental discrepancies in expenditure and revenue projections, taking into account significant changes brought about by the Israeli war.

Ibrahim Kanaan, chairman of the Parliamentary Finance Committee, described the budget as “unrealistic, if not entirely fictitious,” particularly in its revenue estimates. He pointed out that revenue increases were based on income and capital taxes, internal duties, and trade-related fees, all of which have been severely impacted by the war.

Reassuring depositors, both domestic and expatriate, who have suffered massive losses over recent years, is another pressing issue. These losses were exacerbated by the inability of successive governments to implement a comprehensive rescue plan addressing the $72 billion financial gap fairly. The situation was worsened by mismanagement in the electricity sector and the squandering of over $20 billion in central bank reserves following the onset of the financial crisis.

In response to Aoun’s commitment to a fair resolution for depositors, the Association of Banks in Lebanon welcomed his emphasis on safeguarding deposits. It also expressed its readiness to collaborate with the central bank and the government to protect depositors’ rights, citing a recent State Council ruling that prohibits any financial recovery plans from including measures that would erode depositors’ funds.

In its final session, the caretaker government addressed long-standing creditor issues by unanimously agreeing to suspend Lebanon’s right to invoke statutes of limitations on claims by foreign bondholders under New York law. This suspension, effective until March 9, 2028, aims to facilitate future negotiations.

With this decision, the caretaker government tacitly acknowledged Lebanon’s pending debt obligations, including over $10 billion in suspended interest payments on Eurobonds and approximately $30 billion in principal debt. The resolution now awaits direct negotiations under the new administration, which faces the challenge of resolving a nearly five-year-old crisis triggered by the previous government’s uncoordinated decision to halt payments on all Eurobond obligations through 2037.

Caretaker Finance Minister Youssef Khalil emphasized that despite the difficult circumstances, “Lebanon remains committed to reaching a fair and consensual resolution regarding the restructuring of Eurobond debt.”