Trading in foreign currencies worldwide yesterday (May 27, 2025) was characterized by a complex and fascinating picture, reflecting the dynamic interaction between global and local forces. While the US dollar, the world’s dominant currency, showed signs of strengthening against most major currencies, including the Euro, British Pound, Japanese Yen, and Canadian Dollar, it significantly and notably weakened against the Israeli Shekel. This unusual phenomenon indicates the presence of specific factors in the local arena that significantly impact trading in the USD/ILS currency pair, sometimes outweighing the general trends of the dollar in international markets.

During yesterday’s trading, a slight strengthening trend of the US dollar against the Euro (EUR) was evident. The EUR/USD exchange rate recorded a decrease of approximately 0.23%, reflecting that about 0.88328 Euros were needed to purchase one US dollar. A similar movement was observed against the British Pound (GBP), with the GBP/USD rate falling by about 0.25%, and one US dollar buying approximately 0.74055 British Pounds. The dollar also strengthened against major Asian currencies. Against the Japanese Yen (JPY), the dollar appreciated by about 0.29%, with the USD/JPY rate reaching approximately 144.19 Japanese Yen per US dollar. Furthermore, against the Canadian Dollar (CAD), the US dollar strengthened by about 0.42%, and the USD/CAD rate stood at approximately 1.3823 Canadian Dollars per US dollar.

Conversely, and against the global trend, the US dollar weakened against the Israeli Shekel (ILS) by about 0.15% over the past 24 hours, and the USD/ILS rate fell to approximately 3.5358 Shekels per dollar. This decline adds to a more significant weakening of the dollar against the Shekel observed in the earlier trading hours, as noted in initial reports. The noticeable discrepancy between the dollar’s performance against the Shekel and its performance against other major global currencies highlights the strength of local factors influencing the Israeli foreign exchange market.

In-depth Analysis of the Factors Behind the Different Currency Movements

The global strengthening of the dollar can be attributed to several macroeconomic factors and market sentiment. Investors may be reacting to relatively stable economic data coming from the United States, indicating continued growth or at least economic resilience. Additionally, during times of geopolitical uncertainty or global economic concerns, the dollar is often perceived as a “safe haven,” increasing demand for it and strengthening its exchange rate. Furthermore, expectations regarding the future interest rate policy of the Federal Reserve (the US central bank) can significantly impact the dollar’s strength. If the market anticipates future interest rate hikes, dollar-denominated assets may become more attractive, supporting the currency’s appreciation.

On the other hand, the notable weakening of the dollar against the Shekel clearly indicates the dominant influence of local market forces. As analyzed previously, the proactive and rapid response of Israeli institutional investors to the anticipated gains in the US stock market, Wall Street, following the announcement of the suspension of tariffs on goods from the European Union, is likely the primary driver of this decline. Israeli institutional investors, managing large investment portfolios that include US assets, seek to maintain a balanced level of foreign currency exposure in Shekel terms. When they anticipate increases in the value of their holdings on Wall Street, they tend to sell dollars to reduce their overall exposure to the US currency and maintain stability in their investment portfolios.

Impact of Last Weekend’s Events on Market Response

The original and surprising announcement by the then-US President, Donald Trump, last weekend regarding his intention to impose high tariffs on goods imported from the European Union, triggered a negative reaction among investors and led to declines in stock markets, including on Wall Street last Friday. Fears of an escalation in the global trade war and the potential implications for global economic growth led to the selling of risk assets.

However, the subsequent announcement, after the official close of trading, regarding the suspension of these tariffs, created a positive shift in market expectations. Futures contracts on major Wall Street indices showed significant gains at the opening of trading yesterday, indicating a change in investor sentiment and an anticipation of stock market gains.

Israeli institutional investors, who continuously monitor the movements of futures contracts as an early indicator of market direction, reacted quickly to this change. They preempted the US market’s response and began selling dollars, thereby immediately impacting the dollar-Shekel exchange rate. This rapid response demonstrates the close link and high sensitivity of the Israeli financial market to events occurring in global markets, particularly Wall Street, which serves as a kind of compass for many investors.

Summary and Implications for the Israeli Economy

The complex fluctuations observed yesterday in the global foreign exchange market illustrate the multitude of factors influencing exchange rates. While global trends affect the dollar’s strength against most currencies, local events and the actions of institutional investors can create significant movements in specific exchange rates, such as that between the dollar and the Shekel. The unusual weakening of the dollar against the Shekel against the backdrop of its strengthening against other currencies highlights the power of local institutional players and the Israeli market’s sensitivity to movements in the US stock market.

Continued trading in the coming hours and days is expected to be volatile, as markets fully react to the opening of trading in the US and additional economic data that will be released. Close monitoring of these developments is necessary to understand the future direction of the dollar-Shekel exchange rate in the short and medium term. Simultaneously, global macroeconomic trends and the monetary policies of major central banks will continue to play a central role in shaping the global and local foreign exchange markets. Fluctuations in the dollar exchange rate have a broad impact on the Israeli economy, ranging from import and export costs, through the level of inflation, to mortgage payments and investments of households and businesses. A thorough and ongoing analysis of the various factors will help decision-makers and investors navigate the dynamic environment of the foreign exchange market in an informed manner.