Israel’s foreign currency market in August 2016

Graphs & Data

1. The Exchange Rate

Strengthening of the shekel against the dollar and euro, in parallel with a weakening of the dollar worldwide.
In August, the shekel strengthened by about 1.1 percent against the dollar and by about 0.6 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 strengthened by about 0.8 percent in August.
Worldwide, the US dollar weakened against most major currencies in August.  The dollar weakened by 0.5 percent against the euro and by 0.7 percent against the Japanese yen. In contrast, the dollar strengthened by 0.6 percent against the Swiss franc and by 0.3 percent against the British pound.
 
 
2. Exchange Rate Volatility
An increase in actual volatility of the exchange rate, in contrast with a decline in implied volatility.
The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, increased by about 1 percentage point in August, to 5.7 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 0.5 percentage points, to 7.6 percent at the end of August.
The implied volatility in foreign exchange options in emerging markets declined, to an average of about 10.3 percent, and the implied volatility in foreign exchange options in advanced economies declined to about 9.7 percent at the end of August (Figure 4).
 
 
 
3. The Volume of Trade in the Foreign Currency Market
Total trading volume increased, while nonresidents’ relative share of total trading volume declined.
 
Total trading volume in foreign currency in August was about $148 billion, compared with about $145 billion in July. Average daily trading volume declined by about 7 percent, to about $6.4 billion.
 
The volume of trade in spot and forward transactions (conversions) was about $30 billion in August. Average daily trading volume in those transactions declined in August by about 5 percent compared with July.
 
The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $2.9 billion in August. The average daily trading volume in those options declined by about 43 percent in August compared with July, to about $126 million.
 
The trading volume of swap transactions was about $115 billion in August, compared with about $111 million in July. Average daily trading volume declined by about 6 percent from the previous month, to around $5 billion.
 
Nonresidents' share of total trade (spot and forward transactions, options and swaps) declined to about 29 percent at the end of August.  The decline was a result of a decline in the volume of activity by nonresidents in options transactions.