Israel’s foreign currency market in the third quarter 2018
Stability of the shekel vis-à-vis the dollar, with a mixed trend in the dollar worldwide.
During the third quarter, the shekel strengthened by 0.6 percent against the dollar, and by 0.9 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 2.7 percent in the third quarter.
Worldwide, the US dollar was mixed against the major currencies in third quarter. The dollar strengthened by 0.3 percent against the euro, by 2.5 percent against the Japanese yen, and by 0.8 percent against the British pound, and weakened by 1.7 percent against the Swiss franc.
2. Exchange Rate Volatility
An increase in actual volatility of the exchange rate, and an increase in implied volatility.
The standard deviation of changes in the shekel/dollar exchange rate, which represents its actual volatility, increased by about 0.1 percentage points in the third quarter, to 6 percent at the end of September.
The average level of implied volatility in over the counter shekel/dollar options increased by about 0.1 percentage points in the third quarter, to 7.4 percent at the end of september.
The implied volatility in foreign exchange options also increased in the third quarter, to 11.4 percent in emerging economies and 7.5 percent in advanced economies. (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, together with an increase in nonresidents’ relative share of total trading volume.
Total trading volume in foreign currency in the third quarter was about $469 billion, compared with about $489 billion in the previous quarter. Average daily trading volume declined by about 2.5 percent, to about $7.8 billion.
The trading volume in spot and forward transactions (conversions) was about $107 billion in the third quarter. Average daily trading volume in those transactions declined in the third quarter by about 11 percent compared with the previous quarter, to about $1.8 billion.
The trading volume in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $22.4 billion in the third quarter. The average daily trading volume in those options increased compared with the previous quarter, to about $373 million.
The trading volume in swap transactions totaled about $339 billion in the third quarter, compared with about $348 billion in the previous quarter. Average daily trading volume in swap transactions declined by about 0.8 percent compared with the previous quarter, to around $5.7 billion.
Nonresidents' share of total trade (spot and forward transactions, options and swaps) increased by about 3 percentage points to about 41 percent at the end of the third quarter. The increase was a result of increased volume of activity by nonresidents in swap and options transactions.