Israel’s foreign currency market in July 2016

Graphs & Data

1. The Exchange Rate

Strengthening of the shekel against the dollar, in contrast with a strengthening of the dollar worldwide.

In July, the shekel strengthened by about 0.5 percent against the dollar, by about 0.9 percent against the euro and by 2.4 percent against the British pound.
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 1 percent in July.
Worldwide, the US dollar strengthened against most major currencies in July.  The dollar strengthened by 0.4 percent against the euro, by 0.1 percent against the Swiss franc, by 2 percent against the British pound, and by 1 percent against the Japanese yen.
 
2. Exchange Rate Volatility
 
A decline in actual volatility of the exchange rate, in parallel with a decline in implied volatility.
The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, declined by about 4 percentage points in July, to 4.7 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 by about 0.6 percentage points, to 8.3 percent at the end of July.
The implied volatility in foreign exchange options in emerging markets declined, to an average of about 10.5 percent, and the implied volatility in foreign exchange options in advanced economies declined to about 10.3 percent at the end of July (Figure 4).
 
  
 
3. The Volume of Trade in the Foreign Currency Market
 
Total trading volume declined, while nonresidents’ relative share of total trading volume remained stable.
 
Total trading volume in foreign currency in July was about $145 billion, compared with about $165 billion in June. Average daily trading volume declined by about 8 percent, to about $6.9 billion.
 
The volume of trade in spot and forward transactions (conversions) was about $29 billion in July. Average daily trading volume in those transactions declined in July by about 28 percent compared with June.
 
The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $4.7 billion in July. The average daily trading volume in those options declined by about 34 percent in July compared with June, to about $222 million.
 
The trading volume of swap transactions was about $110 billion in July, virtually unchanged compared with June. Average daily trading volume increased by about 3 percent from the previous month, to around $5.3 billion.
 
Nonresidents' share of total trade (spot and forward transactions, options and swaps) remained stable, at about 31.4 percent at the end of July.  A decline in the volume of activity by nonresidents in swap and options transactions led to a decline in total trading volume.