Goldman Sachs: Shekel has lost 8% due to political turmoil

Goldman Sachs says the shekel has an 8% risk premium, which it defines as the share of its cumulative performance that is not explained by global market variables.

Analysts at US investment bank Goldman Sachs issued a report on Friday estimating that the volatility of the shekel is not yet over, after previously warning that the Israeli currency’s risk had grown significantly due to what it termed “domestic political turmoil.”

The shekel’s close correlation with global tech stocks began to break in late January, Goldman Sachs notes, and since then they have been moving in opposite directions. The deviation continued even though the Bank of Israel announced a higher than expected rate hike earlier this month. “The shekel’s performance in January was the worst of any currency against the dollar,” says Goldman Sachs.

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Goldman Sachs estimates that the depreciation of the shekel reflects an 8% risk premium, which it defines as the share of its cumulative performance that is not explained by global market variables.

“While significant political premium now looks to be embedded in the Israeli currency, risks remain for the shekel over the short run. The broader shekel trend this month clearly reflects not just global developments, but domestic ones,” Goldman Sachs analysts write.

Published by Globes, Israel business news – en.globes.co.il – on February 26, 2023.