Israel’s foreign currency market in May 2015

Graphs & Data​​

1. The Exchange Rate
The shekel weakened against the dollar in parallel with the strengthening of the dollar worldwide.
 
In May, the shekel weakened by about 0.4 percent against the dollar. The shekel strengthened by about 1.6 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 weakened by 1 percent in May.
In May, the dollar strengthened notably against most major currencies—by about 1.9 percent against the euro, by about 0.75 percent against the Swiss franc, by about 0.8 percent against the British pound and by about 4.1 percent against the Japanese yen.
 
2. Exchange Rate Volatility
A decrease in actual volatility of the exchange rate, in parallel with a decline in the implied volatility of the exchange rate.
 
The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, decreased in May by about 3.5 percentage points, to 6.5 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––declined to 10.1 percent at the end of May.
The implied volatility in foreign exchange options in emerging markets remained unchanged at 10.6 percent in May. The implied volatility in foreign exchange options in advanced economies decreased slightly, to about 10.1 percent at the end of the month (Figure 4).
 
3. The Volume of Trade in the Foreign Currency Market
Average daily trading volume decreased, in parallel with a decrease in nonresidents’ relative share of total trading.
 
The total volume of trade in foreign currency in May was about $101 billion, compared with about $109 billion in April. Average daily trading volume declined by about 17 percent, to about $5 billion.
 
The volume of trade in spot and forward transactions (conversions) was about $33 billion in May. Average daily trading volume in those transactions declined in May by about 27 percent compared with April. During May, the Bank of Israel purchased $200 million in spot and forward transactions[1], as part of the purchase program intended to offset the effects of natural gas production on the exchange rate.
 
The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $5.8 billion in May. The average daily trading volume in those options was about $290 million in May, a decline of about 31 percent from April.
 
The trading volume of swap transactions was about $61 billion in May, similar to April. Average daily turnover declined by about 8 percent from the previous month, to around $3 billion.
 
Nonresidents' share of total trade (spot and forward transactions, options and swaps) declined in May, to about 35 percent, compared with 38 percent in April. The decline derived from a decrease in the volume of nonresidents’ activity in conversion, swap, and options transactions.


[1] This figure reflects transactions by trade date, not settlement date. Therefore, it is not necessarily identical to the data published in the foreign exchange reserves notice, which reflects transactions by settlement date.
 
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Forex transactions with domestic banks, by instruments and sectors ($ millions)
 
 
 Conversions (1)
 Swaps[1] (2)
 Cross Currency swap[2] (3)
 Options[3] (4)
Total volume of trade (1)+(2)+(3)+(4)
May
2015
 (Not final)
Total
33,121
61,369
390
5,845
100,725
 Daily average (20 days)
1,656
3,068
20
292
5,036
Nonresidents
11,992
20,675
176
2,205
35,048
 of which Foreign financial institutions
11,099
19,711
60
2,134
33,004
Residents
21,129
40,694
214
3,640
65,677
 of which Real sector
6,504
11,914
59
1,244
19,721
 Financial sector
1,912
4,377
0
103
6,392
 Institutions (incl. insurance companies)
3,451
6,889
0
18
10,358
 Individuals and provident funds
944
419
0
373
1,736
 The Bank of Israel
200
0
0
0
200
of which within the program to offset the gas effect
200
0
0
0
200
 Other[4]
4,987
9,576
0
1,464
16,027
 Domestic banks[5]
3,131
7,519
155
438
11,243
April
 2015
Total
40,688
60,351
150
7,632
108,821
 Daily average (18 days)
2,260
3,353
8
424
6,046
Nonresidents
15,621
23,052
50
2,558
41,281
 of which Foreign financial institutions
14,491
21,164
50
2,182
37,887
Residents
25,067
37,299
100
5,074
66,708
 of which Real sector
7,767
8,947
100
1,331
18,145
 Financial sector
2,011
3,350
0
211
5,572
 Institutions (incl. insurance companies)
4,777
7,392
0
2
12,171
 Individuals and provident funds
955
751
0
329
2,035
 The Bank of Israel
615
0
0
0
615
of which within the program to offset the gas effect
50
0
0
0
50
 Other4
5,026
8,743
0
2,648
16,417
 Domestic banks5
3,916
8,116
0
553
12,585
 


[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.