Israel’s foreign currency market in January 2017
1. The Exchange Rate
Strengthening of the shekel against the dollar, in parallel with a weakening of the dollar worldwide.
In January, the shekel strengthened by about 2 percent against the dollar, while weakening by about 0.3 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 0.9 percent in January.
Worldwide, the US dollar weakened markedly against most major currencies in January. The dollar weakened by 2.2 percent against the euro, by 3.2 percent against the Japanese yen, by about 2.8 percent against the Swiss franc, and by about 1.6 percent against the British pound.
2. Exchange Rate Volatility
A decline in actual volatility of the exchange rate in contrast with an increase in implied volatility.
The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, declined by about 2.8 percentage points in January, to 4.2 percent at the end of the month.
The average level of implied volatility in over the counter shekel-dollar options increased by about 0.1 percentage points, to 7.5 percent at the end of January.
In contrast, the implied volatility in foreign exchange options in emerging markets declined, to an average of about 11.6 percent, and the implied volatility in foreign exchange options in advanced economies also declined, to about 10.2 percent at the end of January (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 remained unchanged, in parallel with stability in nonresidents’ relative share of total trading volume.
Total trading volume in foreign currency in January was about $167 billion, unchanged compared with December. Average daily trading volume was unchanged, at about $7.9 billion.
The trading volume in spot and forward transactions (conversions) was about $31 billion in January. Average daily trading volume in those transactions declined in January by about 7 percent compared with December.
The trading volume in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $4.3 billion in January. The average daily trading volume in those options declined by about 9 percent compared with December, to about $200 million.
The trading volume of swap transactions was about $131 billion in January, compared with about $129 billion in December. Average daily trading volume in swap transactions increased by about 1.5 percent compared with the previous month, to around $6.2 billion.
Nonresidents' share of total trade (spot and forward transactions, options and swaps) remained stable at about 34.3 percent at the end of January.