Israel’s foreign exchange market in the second quarter of 2021

1. The Exchange Rate

Strengthening of the shekel in parallel with weakening of the dollar worldwide.

During the course of the second quarter, the shekel strengthened by approximately 2.2 percent against the dollar, and by approximately 1 percent against the euro, further to the long-term trend.

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 approximately 1.3 percent.

The dollar weakened in the second quarter against most major currencies (Figure 2).


2. Exchange Rate Volatility

A decline in actual volatility and in implied volatility.

The standard deviation of changes in the shekel/dollar exchange rate, which represents its actual volatility, declined during the quarter to an average level of 4.85 percent, similar to its average level at the end of 2020 (Figure 3).

The average implied volatility in over the counter shekel/dollar options, an indication of expected exchange rate volatility, declined by 0.85 percentage points during the quarter, to an average level of 6.1 percent.

The average implied volatility in foreign exchange options in emerging markets during the quarter was 9.7 percent, a decline of 0.7 percentage points compared to the previous quarter. The average level of implied volatility in developed markets during the quarter was 6.7 percent, a decline of 0.5 percentage points compared with the previous quarter (Figure 4).


3. The Activity of the Main Segments in the Foreign Exchange Market[1]

An estimate of the activity of the main segments in the foreign exchange market indicates that during the course of the second quarter of 2021, most segments continued in accordance with the long term trend. Institutional investors (pension funds, provident funds, and insurance companies) had net sales of foreign exchange totaling about $11.1 billion and nonresidents sold about $5.8 billion, net, of foreign exchange. In contrast, the business sector returned to net purchases of foreign currency, totaling about $3.5 billion, following net sales in the previous quarter.


4. Trading Volume[2] in the Foreign Exchange Market—tables and figures

The volume of trade with the domestic banking system

The average daily trading volume declined by about 7.7 percent during the quarter, to about $9.4 billion, with most of the decline deriving from the daily trading volume in swaps.

Nonresidents' share of total trading volume with the domestic banking system (spot and forward transactions, options and swaps) increased by about 3.8 percentage points to about 47.1 percent at the end of the second quarter.


Estimated total trading volume[3]—domestic banking system and foreign reporting entities

 

The estimated total activity of transactions against the shekel reflected in reports from the domestic banking system and foreign reporting entities shows that nonresidents relative share of trading volume in spot and forward transactions (excluding swaps and options) was 80 percent in the second quarter, and that trade between nonresidents constituted 68 percent of the volume, which had a daily average of $8.1 billion.

 

Full press release, including graphs and data

Graphs and data​




[1] The main segments presented do not make up the entire market—for additional information, see the section on “Dataset of foreign exchange market activity” in the Bank of Israel's "Statistical Bulletin" for 2018 :

https://www.boi.org.il/en/NewsAndPublications/RegularPublications/Documents/StatBulletin2018/part-two-1.pdf?fireglass_rsn=true


[2] Total trading volume is an estimate of total activity in transactions against the shekel, based on reports by the domestic banking system and by foreign reporting entities.​

[3] Volumes of trade only vis-à-vis the domestic banking system. From the beginning of 2020, the data do not include branches of foreign banks in Israel.​