Overview
Bank of America is retaining a bearish view on the Israeli shekel, holding a long position in USD/ILS that was initiated at 2.99 and is currently trading around 3.0. The bank's position reflects an expectation that the currency pair will rise, driven in part by a projected drop in the S&P 500 and by weakness across emerging market currencies.
Rationale and drivers
The bank argues that the S&P 500 is the principal driver of USD/ILS moves. Local investors who own U.S. equities tend to hedge that exposure by shorting USD/ILS via forward contracts, which links shifts in U.S. equity valuations to shekel performance. Bank of America also describes the shekel as overvalued in its current state, reinforcing its stance that USD/ILS should move higher if the S&P 500 weakens.
Bank of America notes that the shekel's beta to the S&P 500 displays a low correlation with the hedging ratio, suggesting the relationship between equity hedging and currency beta is not tightly aligned in the data the bank reviewed.
Origination of the trade idea
The bank first presented this trading concept in a report titled "EM Alpha: Hawkish Fed means higher USDILS & USDHUF" on June 24, where it outlined expectations for both USD/ILS and USD/HUF to move higher under a hawkish Fed scenario and associated market dynamics.
Central bank intervention threshold
According to Bank of America, the Bank of Israel is likely to intervene in the foreign exchange market if USD/ILS reaches 2.80. That level is cited by the bank as the likely trigger point for official action.
Market context and mechanics
The bank's view ties together several market mechanics: a forecasted S&P 500 decline, broader emerging-market currency weakness, and local investor hedging behavior that links U.S. equity exposure to forward market activity in USD/ILS. These factors underpin Bank of America's continued long USD/ILS exposure.
Note: The article reflects the positions and analysis stated by Bank of America and reports the facts as presented without additional forecasting or commentary beyond those points.