1. The Exchange Rate


Strengthening of the shekel against the dollar, in contrast with the strengthening of the dollar worldwide.


During the course of the third quarter, the shekel strengthened by approximately 1 percent against the dollar, and approximately 3.6 percent against the euro, in line with the long-term trend.  In addition, the shekel strengthened by 2.4 percent against the currencies of Israel's main trading partners, in terms of the nominal effective exchange rate (i.e., the trade-weighted average shekel exchange rate against those currencies), reaching a record level of the past two decades. 


The dollar strengthened in the third quarter against most major currencies (Figure 2).

 2. Exchange Rate Volatility


Declines in actual volatility and in implied volatility.


The standard deviation of changes in the shekel/dollar exchange rate, which represents its actual volatility, declined to 4.13 percent during the third quarter, a lower level than in recent years.


The average implied volatility in over-the-counter shekel/dollar options, an indication of expected exchange rate volatility, declined by about 0.7 percentage points during the quarter, to about 5.5 percent.


The average implied volatility in foreign exchange options in the emerging markets was 9.5 percent at the end of the third quarter, a decline of 0.3 percentage points from its level at the end of the second quarter. The average level of implied volatility in the advanced markets was 6.5 percent at the end of the quarter, a decline of 0.2 percentage points from the previous quarter (Figure 4). 

3. 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, the segments continued to behave in accordance with the long-term trend, but with smaller volumes than in the second quarter. Institutional investors (pension funds, provident funds, and insurance companies) made net sales of foreign currency totaling about $3.3 billion, and nonresidents made net foreign exchange sales of about $3.3 billion. In contrast, the business sector made net purchases of foreign currency, totaling about $3.2 billion. 

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[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):


4. The Volume of Trade[1] in the Foreign Currency Market—Tables and Figures


The average daily trading volume increased by about 1.8 percent during the quarter, to about $9.6 billion, with most of the increase due to an increase in the daily trading volume of swap transactions.

[1] 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.

Nonresidents' share of total trading volume vis-à-vis the domestic banking system (spot and forward transactions, options and swaps) increased by about 3.4 percentage points to about 50.4 percent at the end of the third quarter. 

Estimated total trading volume[1]—domestic banking system and foreign reporting entities


The estimated total activity in transactions against the shekel reflected in reports from the domestic banking system and foreign reporting entities shows that nonresidents’ relative share of trading volume in spot and forward transactions (excluding swaps and options) was 80 percent in the third quarter, and that trade between nonresidents constituted 67 percent of the volume, which had a daily average of $6.8 billion.

[1] Total trading volume is an estimate of total activity in transactions against the shekel, based on reports by the domestic banking system and by foreign reporting entities.​