Israel’s foreign currency market in February 2017

1. The Exchange Rate

Strengthening of the shekel against the dollar, with a mixed trend of the dollar worldwide.

In February, the shekel strengthened by about 2.9 percent against the dollar, and by about 4.4 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 2.9 percent in February.

Worldwide, the US dollar was mixed in February. The dollar strengthened by 1.4 percent against the euro, by 1.3 percent against the Swiss franc, and by 0.4 percent against the British pound. It weakened by 0.9 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 0.4 percentage points in February, to 3.9 percent at the end of the month.

The average level of implied volatility in over the counter shekel-dollar options declined by about 0.5 percentage points, to 7.1 percent at the end of February.

In parallel, the implied volatility in foreign exchange options in emerging markets declined, to an average of about 10.8 percent, and the implied volatility in foreign exchange options in advanced economies also declined, to about 9.8 percent at the end of February (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 stability in nonresidents’ relative share of total trading volume.

 

Total trading volume in foreign currency in February was about $146 billion, compared with about $169 billion in January. Average daily trading volume declined by about 9 percent, to about $7.3 billion.

 

The trading volume in spot and forward transactions (conversions) was about $32 billion in February. Average daily trading volume in those transactions increased in February by about 8 percent compared with January.

 

The trading volume in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $7.7 billion in February. The average daily trading volume in those options increased by about 88 percent compared with January, to about $385 million.

 

The trading volume of swap transactions was about $106 billion in February, compared with about $132 billion in January. Average daily trading volume in swap transactions declined by about 16 percent compared with the previous month, to around $5.3 billion.

 

Nonresidents' share of total trade (spot and forward transactions, options and swaps) remained stable at about 34.5 percent at the end of February.


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