Israel’s foreign currency market in the third quarter of 2019
Strengthening of the shekel against the dollar, in contrast to a strengthening of the dollar worldwide.
During the course of the third quarter, the shekel strengthened by approximately 2.4 percent against the dollar, and by 6.3 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 approximately 4.4 percent.
Worldwide, there was a trend of the US dollar strengthening against most major currencies in the third quarter (Figure 2). The dollar strengthened by approximately 4.2 percent against the euro, by 0.2 percent against the Japanese yen, by 1.94 percent against the Swiss franc, and by 3.16 percent against the British pound.
2. Exchange Rate Volatility
Increase in actual volatility of the exchange rate, in parallel with stability in implied volatility.
The standard deviation of changes in the shekel/dollar exchange rate, which represents its actual volatility, increased by 0.3 percentage points in the third quarter, and was 5.4 percent at the end of September.
The average level of implied volatility in over the counter shekel/dollar options was unchanged over the third quarter, and was 7.2 percent at the end of September.
The implied volatility in foreign exchange options in emerging markets declined in the third quarter to 8.7 percent, compared with 9.2 percent at the end of the previous quarter. In contrast, the implied volatility in foreign exchange options in developed markets increased to 7 percent at the end of the third quarter, compared with 6.3 percent at the end of the previous quarter (Figure 4).
The implied volatility in foreign exchange options trading is an indication of expected exchange rate volatility.
3. The Activity of the Main Segments in the Foreign Exchange Market
During the third quarter of 2019, a change was seen in the activity of nonresidents and the domestic financial sector, compared with the previous quarter. An estimate of the activity of the main segments indicates that during the course of the third quarter, nonresidents sold a net $3.5 billion, compared with purchases of $0.7 billion in the previous quarter.
Institutional investors (pension funds, provident funds, and insurance companies) continued to sell foreign currency in the third quarter, at a total of $0.5 billion, net. In contrast, the business sector purchased about $3.6 billion, net, and the financial sector purchased about $1.7 billion, net.
Since the beginning of the year, nonresidents sold foreign currency totaling $5.3 billion, and institutional investors sold foreign currency totaling $3.8 billion, while the business sector purchased a total of $10.9 billion.
The Bank of Israel has not intervened significantly in foreign currency trading since the beginning of the year.
 The main sectors presented do not make up the entire market—for additional information, see the section on “The database of foreign exchange market activity” in the Bank of Israel's "Statistical Bulletin" for 2018 (in Hebrew):