The Exchange Rate

During the course of the third quarter, the shekel strengthened by approximately 0.7 percent against the dollar, further to the long-term trend.  In contrast, the shekel weakened by about 3.7 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 weakened by approximately 0.6 percent, as a result of its weakening against the euro, which accounts for a sizeable portion of the currency basket, and contrary to the long-term trend. 

The dollar weakened in the third quarter against most major currencies—most particularly against the euro and the British pound, against which the dollar weakened by about 4.25 percent each (Figure 2).

Exchange Rate Volatility –A decline in actual volatility and a slight decline in implied volatility

The standard deviation of changes in the shekel/dollar exchange rate, which represents its actual volatility, declined to average rate of 5.1 percent during the third quarter, further to the decline in the previous quarter.  During the third quarter, the standard deviation returned to its pre-crisis level (see Figure 3).

The implied volatility in over the counter shekel/dollar options, an indication of expected exchange rate volatility, also declined in the third quarter, though more moderately, to an average rate of 6.11 percent at the end of June, a decline of 1.3 percentage points from the average rate during the second quarter. It should be noted that most of the decline took place at the beginning of the quarter, and that there was actually an increase at the end of the quarter.

The implied volatility in foreign exchange options in emerging markets declined to an average rate of 10.7 percent during the third quarter, a decline of 0.8 percentage points from its level during the second quarter. In parallel, the implied volatility in foreign exchange options in developed markets declined to 8.2 percent during the third quarter, a decline of 0.3 percentage points from the previous quarter (Figure 4).  Similar to the implied volatility in shekel/dollar options, volatility in the emerging and developed markets declined at the beginning of the quarter and increased thereafter.

The Activity of the Main Segments in the Foreign Exchange Market[1]


An estimate of the activity of the main segments in the foreign exchange market indicates that during the course of the third quarter, most segments continued with the policies they had followed in the second quarter. Institutional investors (pension funds, provident funds, and insurance companies) made net sales of foreign currency totaling about $3 billion, and nonresidents made net foreign exchange sales of about $2.3 billion. In contrast, the business sector continued its net purchases of foreign currency, totaling about $0.8 billion.  It should be noted that in the third quarter as well, there was a marked return to the long-term trends in each sector, following changes to the trend in the first quarter due to the COVID crisis.

The Volume of Trade[2] in the Foreign Currency Market—tables and figures


The average daily trading volume declined by about 5.9 percent during the quarter, to about $8 billion, further to the decline in the second quarter.

Nonresidents' share of total trading volume (spot and forward transactions, options and swaps) increased by about 0.45 percentage points to 43.4 percent during the third quarter.

[1] The main segments 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):

[2] Volumes of trade only vis-à-vis the domestic banking system. From the beginning of 2020, the data do not include branches of foreign banks in Israel.​​