1. The Exchange Rate
Strengthening of the shekel
against the dollar, with a weakening of the dollar worldwide.
In May, the shekel strengthened by
about 1.6 percent against the dollar, and weakened by 0.7 percent against the
Against the currencies of Israel’s
main trading partners, in terms of the nominal effective exchange rate of the
shekel (i.e., the trade-weighted average shekel exchange rate against those
currencies), the shekel strengthened by about 0.8 percent in May.
Worldwide, the US dollar weakened
against most major currencies in May. The dollar weakened by 2.4 percent
against the euro, by 0.3 percent against the Japanese yen, and by 1.7 percent
against the Swiss franc. In contrast, the dollar strengthened by 0.6 percent
against the British pound.
2. Exchange Rate Volatility
A decline in actual volatility of
the exchange rate in parallel with a decline in implied volatility.
The standard deviation of changes in
the shekel-dollar exchange rate, which represents its actual volatility,
declined by about 2.9 percentage points in May, to 3.3 percent at the end of
The average level of implied
volatility in over the counter shekel-dollar options declined by about 0.2
percentage points, to 7.2 percent at the end of May.
In parallel, the implied volatility in
foreign exchange options in emerging markets declined, to an average of about
9.2 percent, and the implied volatility in foreign exchange options in advanced
economies also declined, to about 7.5 percent at the end of May (Figure 4).
The implied volatility in foreign
exchange options trading is an indication of expected exchange rate
3. The Volume of Trade in the
Foreign Currency Market
Total trading volume increased,
with a decline in nonresidents’ relative share of total trading volume.
Total trading volume in foreign
currency in May was about $139 billion, compared with about $133 billion in
April. Average daily trading volume declined by about 12 percent, to about $7.3
The trading volume in spot and
forward transactions (conversions) was about $27 billion in May. Average
daily trading volume in those transactions declined in May by about 9 percent.
The trading volume in over the
counter foreign currency options (which are not traded on the stock
exchange) totaled about $5.9 billion in May. The average daily trading volume
in those options increased compared with April, to about $312 million.
The trading volume in swap
transactions was virtually unchanged from the previous month, totaling
about $105 billion. Average daily trading volume in swap transactions declined
by about 16 percent compared with the previous month, to around $5.5 billion.
Nonresidents’ share of total trade
(spot and forward transactions, options and swaps) declined to about 32.1 percent
at the end of May. The decline was a result of lower volume of activity by
nonresidents in swap transactions.
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