Israel’s currency has surged to its strongest level against the U.S. dollar in three decades, an extraordinary development given the ongoing regional turmoil that has gripped the country since October 7, 2023.

Since the beginning of May, the exchange rate has hovered around 2.85 shekels per dollar, a dramatic rise from the roughly 4 shekels per dollar seen in October 2023. The shekel has also strengthened sharply against the euro, with one euro falling from 4.34 shekels in October 2023 to approximately 3.39 shekels in May 2026.

The sharp appreciation comes as Israel’s broader economic data continues to outperform expectations. The Bank of Israel is projecting economic growth of 3.8% for 2026, inflation dropped to 1.9% in March, and unemployment has remained relatively low at 3.2%.

For Israeli consumers, the stronger shekel carries significant benefits. Imported goods become cheaper, particularly energy products purchased in dollars, while overseas travel has become far less expensive for Israeli families. At the same time, however, the strengthening currency has placed growing pressure on exporters — especially Israel’s technology sector — since Israeli products and services become more costly in foreign markets.

According to the Bank of Israel, several developments have contributed to the shekel’s rapid climb. The ceasefire in the Middle East helped calm investor fears, lowered the perceived risk attached to Israeli assets, and encouraged foreign capital to flow back into the country. In addition, the weakening of the dollar, tied in part to President Trump’s economic policies, has naturally boosted other global currencies, including the shekel.

Economists also point to another major driver behind the rally: the American stock market. Israeli pension funds maintain large investments in U.S. equities and often hedge currency exposure by selling dollars and purchasing shekels. As Wall Street continues climbing, those hedging transactions have accelerated, further strengthening the Israeli currency.

Between August 2025 and February 2026, those currency-hedging activities are estimated to have involved roughly $23 billion in additional transactions. Economist Alex Zabezhinsky estimated that this factor alone may account for as much as 40% of the shekel’s recent gains.

The dramatic rise in the shekel is now creating growing pressure on policymakers at the Bank of Israel. Business leaders and exporters have increasingly urged the central bank to lower interest rates in an effort to weaken the currency and provide relief to Israeli companies competing overseas.

For now, however, the Bank of Israel has kept its benchmark interest rate at 4% — still higher than rates in both the United States and the eurozone — a policy that continues attracting investors to shekel-based assets.

Officials face a difficult balancing act. While lowering rates could ease pressure on exporters, it also risks reigniting inflation at a time when Israel continues dealing with war-related uncertainty and volatile energy prices.

Concern is also beginning to grow within the Israeli government itself. Israeli exports have steadily declined in recent years, falling from more than $76 billion in 2022 to under $59 billion last year.

In response, Israel’s Finance Ministry recently announced a new funding initiative focused on artificial intelligence, aimed at helping companies hurt by the shekel’s sharp rise remain competitive in global markets.

{Matzav.com}