Israel’s foreign currency market in January 2015

​ Graphs & Data

1. The Exchange Rate
The shekel weakened against the dollar, in parallel with strengthening of the dollar worldwide.
 
In January, the shekel weakened by about 0.9 percent against the dollar, and strengthened by about 5.7 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 percent in January.
In January, the dollar strengthened markedly against most currencies globally—including by about 7.0 percent against the euro, and by about 3.4 percent against the British pound. In contrast, the dollar weakened by about 6.8 percent against the Swiss franc and by about 1.5 percent against the Japanese yen.
Since August, 2014, the shekel has depreciated against the dollar by about 14.5 percent in total, and by about 3.6 percent in terms of the nominal effective exchange rate.
 
2. Exchange Rate Volatility
A decline 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, declined in January by about 0.2 percentage points, to 9.2 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––increased to 10.2 percent at the end of January, compared with 9.3 percent in December.
In parallel, the implied volatility in foreign exchange options in emerging markets increased to an average of 10.0 percent in January, and the implied volatility in foreign exchange options in advanced economies increased to an average of 10.5 percent during 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 January was about $150 billion, compared with about $177 billion in December. Average daily trading volume declined by about 15 percent in January, to about $7.1 billion.
 
The volume of trade in spot and forward transactions (conversions) was about $49 billion in January. The average daily trading volume in those transactions declined in January by about 6 percent compared with December. During January, the Bank of Israel purchased $260 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 $11.6 billion in January. The average daily trading volume in those options was about $550 million in January, a decline of about 20 percent from December.
 
The trading volume of swap transactions was about $89 billion in January, compared with $108 billion in December. Average daily turnover declined by about 17 percent from the previous month, to around $4.2 billion.
 
Nonresidents' share of total trade (spot and forward transactions, options and swaps) increased in January, to about 38 percent, compared with about 33 percent in December (see Figure 5).
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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)
January
2015
 (Not final)
Total
48,792
88,876
834
11,629
150,131
 Daily average (21 days)
2,323
4,232
40
554
7,149
Nonresidents
18,758
33,062
575
4,756
57,151
 of which Foreign financial institutions
17,703
31,116
575
4,003
53,397
Residents
30,034
55,814
259
6,873
92,980
 of which Real sector
6,815
7,874
150
3,325
18,164
 Financial sector
6,315
24,940
0
1,834
33,089
 Institutions (incl. insurance companies)
3,582
8,506
34
50
12,172
 Individuals and provident funds
2,302
3,202
0
268
5,772
 The Bank of Israel
260
0
0
0
260
of which within the program to offset the gas effect
260
0
0
0
260
 Other[5]
4,055
2,318
0
341
6,714
 Domestic banks[6]
6,705
8,974
75
1,055
16,809
December
 2014
Total
51,901
107,598
2,965
14,533
176,997
 Daily average (21 days)
2,471
5,124
141
692
8,428
Nonresidents
17,852
34,293
1,829
3,866
57,840
 of which Foreign financial institutions
16,844
31,980
1,829
3,725
54,378
Residents
34,049
73,305
1,136
10,667
118,310
 of which Real sector
8,325
11,636
1,086
4,871
25,918
 Financial sector
8,384
40,173
0
2,895
51,452
 Institutions (incl. insurance companies)
3,742
9,564
0
375
13,681
 Individuals and provident funds
1,414
714
0
495
2,623
 The Bank of Israel
445
0
0
0
445
of which within the program to offset the gas effect
445
0
0
0
445
 Other4
4,547
2,224
0
315
7,086
 Domestic banks5
7,192
8,994
50
1,716
17,952
 


[1] 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.