After several weeks of steady losses against the shekel, the U.S. dollar has begun to regain ground in recent days, fueled by growing expectations that the Bank of Israel may move more quickly to cut interest rates.

The Bank of Israel’s latest representative exchange rate was set at 2.8950 shekels per dollar, reflecting a daily increase of 0.801%. The euro also posted gains against the Israeli currency.

The primary driver behind the shift appears to be changing market expectations regarding Israeli monetary policy. Bank of Israel Governor Prof. Amir Yaron recently indicated that if inflation expectations continue to decline, it could justify a more accommodative monetary policy and potentially a faster pace of interest-rate reductions.

Investors interpreted those comments as a signal that interest rates in Israel could be lowered sooner than previously anticipated.

When markets expect interest rates to decline, the shekel often weakens because holding shekel-denominated assets becomes less attractive. That dynamic has helped the dollar recover after trading at unusually low levels in recent weeks.

Concerns among exporters and high-tech companies have also played a role. A strong shekel reduces the value of revenues earned in dollars when those earnings are converted into local currency, making fluctuations in the exchange rate especially significant for major sectors of the Israeli economy.

Despite the dollar’s recent gains, financial analysts caution that it is still too early to declare a lasting reversal in the currency trend.

A few days of strengthening do not necessarily outweigh the factors that have supported the shekel in recent months, including robust high-tech exports, strong performance in U.S. financial markets, and continued investment flows into Israel’s stock market.

The Bank of Israel is expected to continue monitoring inflation data, currency movements, and the security situation before making any further policy decisions.

For now, many market observers view the dollar’s recent rise primarily as a sharp correction following a significant decline, rather than definitive evidence of a new long-term trend in the foreign exchange market.