Israel's currency fell alongside its bonds and stock market on Tuesday as a wave of deadly airstrikes by its military in Gaza threatened the complete collapse of an already fragile two-month ceasefire with Hamas.
Concerns about both the humanitarian and economic costs of a return to intense fighting spiked as Israel's resumption of bombing of Gaza, which it said was a "preemptive offensive" to try to force the release of its remaining hostages, prompted anger from Hamas.
Israel's shekel dropped as much as half a percent against both the dollar and euro, while many of its government bonds, which suffered a wave of rating downgrades last year due to the war, had their biggest falls in over a month, Reuters reported.
Ronen Menachem, chief markets economist at Mizrahi Tefahot Bank, said a resumption in the conflict could see further falls in the shekel and a renewed rise in Israel’s bond market risk premium.
"The market will react based on whether this is perceived as a defined and limited operation or the opening of a broader campaign," he said.
Israel's Prime Minister Benjamin Netanyahu said he had instructed the military to take Tuesday's "strong action" in response to Hamas's refusal to release the remaining 59 hostages it holds following its October 7, 2023 attacks and its rejection of other ceasefire proposals.
The Palestinian militant group accused Netanyahu of breaching the ceasefire deal and jeopardizing efforts by mediators to secure a permanent truce.
Negotiating teams from Israel and Hamas had been in Doha as mediators from Egypt and Qatar sought to bridge the gap between the two sides after the end of an initial phase in the ceasefire, in which 33 Israeli hostages and five Thais were released in exchange for some 2,000 Palestinian prisoners.
