Israel’s foreign currency market in October 2014

Graphs & Data

1. The Exchange Rate

The dollar strengthened against the shekel, in parallel with strengthening of the dollar worldwide.
 
In October, the shekel weakened by about 2.4 percent against the dollar, and by about 2.3 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 the end of July of 11.3 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 2.3 percent.
Globally, the dollar strengthened in October against most currencies—including by about 0.1 percent against the euro, by about 0.1 percent against the Swiss franc, by about 1.3 percent against the British pound, and by about 1.5 percent against the Japanese yen.
 
 
2. Exchange Rate Volatility
A marked increase 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, increased significantly in October by about 5 percentage points, to 9.3 percent at the end of the month. With that, this level is not exceptional compared to similar periods of increased volatility.
The average level of implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––increased to 7.9 percent at the end of October, compared with 7 percent in September.
At the same time, in October, the implied volatility in foreign exchange options in emerging markets also increased, to 8.3 percent on average. The implied volatility in foreign exchange options in advanced economies increased as well in October, to 7.7 percent at the end of the month (see Figure 4).
 
 
3. The Volume of Trade in the Foreign Currency Market
Total trading volume declined, and nonresidents’ share of trading volume increased.
 
The total volume of trade in foreign currency in October was about $135 billion, compared with about $152 billion in September. Average daily trading volume declined by about 15 percent in October, to about $7 billion.
 
The volume of trade in spot and forward transactions (conversions) was about $43 billion in October. The average daily trading volume in those transactions declined in October by about 10 percent compared with September.  During October, the Bank of Israel purchased $280 million in spot and forward transactions[1], as part of the purchasing 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 $11 billion in October. The average daily trading volume in those options was about $560 million in October, a decline of about 18 percent compared with September.
 
The trading volume of swap transactions was about $80 billion in October, compared with $92 billion in September. Average daily turnover declined by about 17 percent from the previous month, to around $4 billion.
 
Nonresidents' share of total trade (spot and forward transactions, options and swaps) increased in October, to about 30 percent, compared with about 27 percent in September (see Figure 5).

09-11-2014-E1.png

 09-11-2014-E2.png

09-11-2014-E3.png

09-11-2014-E4.png
09-11-2014-E5.png


09-11-2014-E6.png

Forex transactions with domestic banks, by instruments and sectors           
($ million)
 
 
 
 
 Conversions (1)
 Swaps[2] (2)
 Cross Currency swap[3] (3)
 Options[4] (4)
Total volume of trade (1)+(2)+(3)+(4)
October
2014
 (Not final)
Total
43,142
80,065
702
11,204
135,113
 Daily average (20 days)
2,157
4,003
35
560
6,756
Nonresidents
17,743
18,962
292
3,936
40,933
 of which Foreign financial institutions
17,165
17,976
292
3,890
39,323
Residents
25,399
61,103
410
7,268
94,180
 of which Real sector
6,754
7,392
10
3,076
17,232
 Financial sector
4,850
39,490
200
2,489
47,029
 Institutions (incl. insurance companies)
4,161
5,008
0
75
9,244
 Individuals and provident funds
1,089
3,625
0
450
5,164
 The Bank of Israel
280
0
0
0
280
of which within the program to offset the gas effect
280
0
0
0
280
 Other[5]
3,116
12
0
140
3,268
 Domestic banks[6]
5,149
5,576
200
1,038
11,963
September
 2014
Total
45,570
92,226
962
13,002
151,760
 Daily average (19 days)
2,398
4,854
51
684
7,987
Nonresidents
17,749
18,956
0
4,381
41,086
 of which Foreign financial institutions
17,144
18,505
0
4,317
39,966
Residents
27,821
73,270
962
8,621
110,674
 of which Real sector
8,449
5,193
467
4,419
18,528
 Financial sector
5,746
41,021
180
2,526
49,473
 Institutions (incl. insurance companies)
4,149
9,505
85
0
13,739
 Individuals and provident funds
1,549
9,335
0
504
11,388
 The Bank of Israel
0
0
0
0
0
of which within the program to offset the gas effect
0
0
0
0
0
 Other4
3,843
21
0
211
4,075
 Domestic banks5
4,085
8,195
230
961
13,471
 


[1] T 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.
[2]  Only one leg of the swap, i.e., the nominal value of the transaction (in accordance with the BIS definition)
[3]  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.
[4] The national value, that includes purchases and sales of put and call options.
[5] Including other entities such as portfolio managers, nonprofit organizations, national institutions, and those not include elsewhere.
[6] Total interbank trade, divided in two.