Israel’s foreign currency market in September 2014

Graphs & Data

1. The Exchange Rate
The dollar strengthened against the shekel, in parallel with strengthening of the dollar worldwide.
 
In September, the shekel weakened by about 3.6 percent against the dollar, and strengthened by about 1.2 percent against the euro. Thus, this month as well there was a continuation of the trend of depreciation of the shekel vis-à-vis the dollar, with a cumulative depreciation since August of 7.6 percent.
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 weakened by about 0.6 percent.
The depreciation in September was mostly global, as the dollar strengthened against most currencies by high rates—including by about 4.9 percent against the euro, by about 4.8 percent against the Swiss franc, by about 2.5 percent against the British pound, and by about 5.7 percent against the Japanese yen. Likewise, the dollar strengthened against the index of advanced economy currencies by about 3.85 percent (see Figure 2.1).
 
 
2. Exchange Rate Volatility
A decline in actual volatility of the exchange rate, in parallel with an increase in the implied volatility of the exchange rate.
 
The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, declined in September by about 3 percentage points, returning to its average level of recent months, and was 4.3 percent at the end of the month.
The average level of implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––increased moderately, to 7.2 percent at the end of September, compared with 7 percent in August.
At the same time, in September, the implied volatility in foreign exchange options in emerging markets also increased, to 8 percent on average. The implied volatility in foreign exchange options in advanced economies increased as well in September, to 7.2 percent at the end of the month (see Figure 4).
 
 
3. The Volume of Trade in the Foreign Currency Market
Total trading volume declined, as did nonresidents’ share of trading volume.
 
The total volume of trade in foreign currency in September was about $151 billion, compared with about $162 billion in August. Average daily trading volume declined by about 2 percent in September, to about $8 billion.
 
The volume of trade in spot and forward transactions (conversions) was about $45 billion in September. The average daily trading volume in those transactions increased in September by about 7 percent compared with August.
 
The volume of trade in over the counter foreign currency options totaled about $13 billion in September. The average daily trading volume in those options was about $680 million in September, a decline of about 20 percent compared with August.
 
The trading volume of swap transactions was about $92 billion in September, compared with $100 billion in August. Average daily turnover declined by about 3 percent from the previous month, to around $4.8 billion.
 
Nonresidents' share of total trade (spot and forward transactions, options and swaps) declined in September, to about 27 percent, compared with about 31 percent in August (see Figure 5).

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Forex transactions with domestic banks, by instruments and sectors           
($ million)
 
 
 
 Conversions (1)
 Swaps[1] (2)
 Cross Currency swap[2] (3)
 Options[3] (4)
Total volume of trade (1)+(2)+(3)+(4)
September
2014
 (Not final)
Total
45,195
92,141
962
12,894
151,192
 Daily average (19 days)
2,379
4,850
51
679
7,957
Nonresidents
17,464
18,939
0
4,369
40,772
 of which Foreign financial institutions
16,860
18,488
0
4,305
39,653
Residents
27,731
73,202
962
8,525
110,420
 of which Real sector
8,449
5,192
467
4,302
18,410
 Financial sector
5,739
40,965
180
2,526
49,410
 Institutions (incl. insurance companies)
4,129
9,505
85
0
13,719
 Individuals and provident funds
1,481
9,299
0
514
11,294
 The Bank of Israel
0
0
0
0
0
of which within the program to offset the gas effect
0
0
0
0
0
 Other[4]
3,861
21
0
222
4,104
 Domestic banks[5]
4,072
8,220
230
961
13,483
August
 2014
Total
44,491
100,392
210
17,072
162,165
 Daily average (20 days)
2,225
5,020
11
854
8,108
Nonresidents
20,049
22,657
70
8,179
50,955
 of which Foreign financial institutions
19,322
21,801
70
8,064
49,257
Residents
24,442
77,735
140
8,893
111,210
 of which Real sector
7,210
5,784
10
4,294
17,298
 Financial sector
4,140
42,984
0
2,273
49,397
 Institutions (incl. insurance companies)
4,308
7,297
0
215
11,820
 Individuals and provident funds
1,113
11,069
0
620
12,802
 The Bank of Israel
585
0
0
0
585
of which within the program to offset the gas effect
585
0
0
0
585
 Other4
3,155
55
0
227
3,437
 Domestic banks5
3,931
10,546
130
1,264
15,871
 

 


[1]  Only one leg of the swap, i.e., the nominal value of the transaction (in accordance with the BIS definition)
[2]  The exchanged founds through Cross Currency Swap transactions considered for the volume, as one leg only in cases where the two legs offset each other.
[3] The national value, that includes purchases and sales of put and call options.
[4] Including other entities such as portfolio managers, nonprofit organizations, national institutions, and those not include elsewhere.
[5] Total interbank trade, divided in two.