Israel’s foreign currency market in June 2017
Strengthening of the shekel against the dollar, in parallel with a weakening of the dollar worldwide.
In June, the shekel strengthened by 1.8 percent against the dollar, and weakened by 0.5 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 June.
Worldwide, the US dollar weakened against most major currencies in June. The dollar weakened by 2.2 percent against the euro, by 1.0 percent against the British pound, and by 1.8 percent against the Swiss franc. In contrast, the dollar strengthened by 0.8 percent against the Japanese yen.
2. Exchange Rate Volatility
An increase in actual volatility of the exchange rate, 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 1.2 percentage points in June, to 4.4 percent at the end of the month.
The average level of implied volatility in over the counter shekel-dollar options declined by about 0.3 percentage points, to 6.9 percent at the end of June.
In parallel, the implied volatility in foreign exchange options in emerging markets declined, to an average of about 8.7 percent, and the implied volatility in foreign exchange options in advanced economies also declined, to about 7.2 percent at the end of June (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 increased, in parallel with an increase in nonresidents’ relative share of total trading volume.
Total trading volume in foreign currency in June was about $146 billion, compared with about $139 billion in May. Average daily trading volume declined by about 9 percent, to about $6.6 billion.
The trading volume in spot and forward transactions (conversions) was about $29 billion in June. Average daily trading volume in those transactions declined in June by about 10 percent compared with May.
The trading volume in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $6.3 billion in June. The average daily trading volume in those options declined compared with May, to about $289 million.
The trading volume in swap transactions totaled about $110 billion, compared with about $105 billion in May. Average daily trading volume in swap transactions declined by about 9 percent compared with the previous month, to around $5 billion.
Nonresidents' share of total trade (spot and forward transactions, options and swaps) increased to about 34 percent at the end of June. The increase was a result of higher volume of activity by nonresidents in swap and in conversion transactions.