Israel’s foreign currency market in April 2017

1. The Exchange Rate

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

In April, the shekel strengthened by about 0.4 percent against the dollar, and weakened by 1.5 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 about 0.5 percent in April.

Worldwide, the US dollar weakened against most major currencies in April. The dollar weakened by 1.8 percent against the euro, by 0.5 percent against the Japanese yen, by 0.7 percent against the Swiss franc, and by 3.7 percent against the British pound.

 

 

 

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 2.7 percentage points in April, to 6.1 percent at the end of the month.

The average level of implied volatility in over the counter shekel-dollar options declined by about 0.8 percentage points, to 7.3 percent at the end of April.

In parallel, the implied volatility in foreign exchange options in emerging markets declined, to an average of about 10.1 percent, and the implied volatility in foreign exchange options in advanced economies also declined, to about 8.3 percent at the end of April (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 declined, with an increase in nonresidents’ relative share of total trading volume.

 

Total trading volume in foreign currency in April was about $133 billion, compared with about $179 billion in March.[1] Average daily trading volume increased by about 2 percent, to about $8.3 billion.

 

The trading volume in spot and forward transactions (conversions) was about $25 billion in April. Average daily trading volume in those transactions was unchanged in April 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 $2.8 billion in April. The average daily trading volume in those options declined compared with March, to about $176 million.

 

The trading volume of swap transactions was about $104 billion in April, compared with about $134 billion in March. Average daily trading volume in swap transactions increased by about 7 percent compared with the previous month, to around $6.5 billion.

 

Nonresidents' share of total trade (spot and forward transactions, options and swaps) increased to about 40.5 percent at the end of April.

 

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[1] It is worth noting that there were fewer trading hours in April than in March.