Israel’s foreign currency market in March 2017

1. The Exchange Rate

Strengthening of the shekel against the dollar, with a weakening of the dollar worldwide.

In March, the shekel strengthened by about 0.7 percent against the dollar, and weakened by 0.1 percent against the euro.

Against the currencies of Israel's main trading partners, in terms of the nominal effective exchange rate of the shekel (i.e., the trade-weighted average shekel exchange rate against those currencies), the shekel strengthened by about 0.4 percent in March.

Worldwide, the US dollar weakened against most major currencies in March. The dollar weakened by 0.7 percent against the euro, by 0.3 percent against the Japanese yen, by 0.4 percent against the Swiss franc, and by 0.1 percent against the British pound.

 

2. Exchange Rate Volatility

An increase in actual volatility of the exchange rate in parallel with an increase in implied volatility.

The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, increased by about 4.9 percentage points in March, to 8.8 percent at the end of the month.

The average level of implied volatility in over the counter shekel-dollar options increased by about 1 percentage point, to 8.1 percent at the end of March.

In contrast, the implied volatility in foreign exchange options in emerging markets declined, to an average of about 10.2 percent, and the implied volatility in foreign exchange options in advanced economies also declined, to about 8.8 percent at the end of March (Figure 4).

The implied volatility in foreign exchange options trading is an indication of expected exchange rate volatility.

 

3. The Volume of Trade in the Foreign Currency Market

Total trading volume increased, with an increase in nonresidents’ relative share of total trading volume.

 

Total trading volume in foreign currency in March was about $179 billion, compared with about $146 billion in February. Average daily trading volume increased by about 11 percent, to about $8.1 billion.

 

The trading volume in spot and forward transactions (conversions) was about $36 billion in March. Average daily trading volume in those transactions was unchanged in March at about $1.6 billion.

 

The trading volume in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $9.3 billion in March. The average daily trading volume in those options increased by about 10 percent compared with February, to about $425 million.

 

The trading volume of swap transactions was about $134 billion in March, compared with about $106 billion in February. Average daily trading volume in swap transactions increased by about 15 percent compared with the previous month, to around $6.1 billion.

 

Nonresidents' share of total trade (spot and forward transactions, options and swaps) increased to about 37.5 percent at the end of March. The increase was a result of increased volume of nonresidents’ activity in conversion, spot, forward and swap transactions.


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