An item on an edition of the Financial Times podcast this week indicated that currencies of smaller economies are weakening daily, particularly against the dollar.

There are many reasons for this. They include the relatively sharp rise in interest rates in the USA, who will be hit hardest by the fallout from the Ukrainian mess, and the continuing impact of 2 years of covid. Each country will have its own idiosyncrasies. Meanwhile, let’s have a look at the position of the Israeli shekel.

Overall, despite new domestic political shenanigan’s and the threat of Palestinian violence, the Israeli economy is doing well. The Treasury is having a windfall with a whopping budget surplus, unemployment will struggle to go any lower and the world of high-tech bubbles along. And just at the right time for Europe, new gas reserves have been discovered in Israeli territorial waters.

Earlier this week, the financial newspaper “Globes” reported that the Israeli shekel is valued at its lowest for 20 months against the dollar. Again, there are many causes for this – international stock market uncertainties, et al. But let’s not forget that following on from the turmoil at the end of the Trump administration, the shekel was only recently considered the darling of world currencies.

Where next?

In the past, the Bank of Israel has always ensured that its rate of interest remained competitive when looking over its shoulder to what the Fed does. That difference looks as if it might be partially eroded in the near future. That implies that the shekel has further to decline.

A client of mine has to create a new pricing strategy for exports around the globe, looking at setting prices for up to a year ahead. As his business mentor, what did I think?

Given the various geopolitical uncertainties that look as if they will linger and impact for months to come (at least) and given the political uncertainty in Israel, I said that he had two options. Either add in a large safety factor and totally overcharge from the getgo. Alternatively, he should refuse to commit to prices beyond the next three months.

Those running the economy in Jerusalem may have some reserves compared to their counterparts in the OECD, but that extra rope is still limited. Tricky times ahead.