The Israeli New Shekel, or ILS for short, has seen a period of wild swings over the course of 2023. Due to the Israeli-Hamas war being a major shock to the financial sector, individual traders and investors, as well as major institutions, reacted quickly to the unfolding events, which was evident on currency pairs involving the ILS:

• The ILS/USD pair dropped from 0.28 in July to as low as 0.25 in late October of 2023

• The same pair jumped to as high as 0.28 by the end of December, 2023

While the ILS has managed to regain all of its lost ground since the start of the war, many investors and traders are uncertain regarding the future prospects of the currency, which largely depends on the outcome of the war and its long-term geopolitical implications. 

For traders that would like to speculate on the future direction of the currency, FX brokers like axiory.com offer exotic pairs at reasonable spreads. 

Factors affecting the performance of ILS in 2024

In order to gauge how the ILS may perform in 2024, we must first understand the multiple factors that can greatly affect its exchange rate, whether negatively or positively. 

By understanding these factors, we can have a better view of market sentiment regarding the shekel and whether a near-term outlook should be bullish or bearish for the currency. 

The ongoing Israel-Hamas war

The war between Hamas and Israel has had a major impact on the economy of Israel, as well as the geopolitical climate of the region.

This had a direct effect on the exchange rate of the Israeli shekel, which dropped considerably from the start of the war, before rebounding towards the start of 2024. 

Many analysts argue about the effects of the war on the economy of Israel. While the short-term economic growth has been hampered, there could also be long-term implications that are yet to be fully seen, such as that on the maritime trade and shipping industries. 

An uncertain geopolitical climate and the prevalence of military spending in the economy is unlikely to provide many tailwinds for ILS, which is why a decline by the end of 2024 is more than likely. 

Trade statistics 

The war has greatly affected Israel’s position in international trade. For instance, exports have declined by 18.3%, while imports have dropped by a whopping 42%, since the start of the war. 

As instability continues in the country, trade barriers will persist, as companies look for alternative shipping routes and destinations – placing a bigger pressure on the Israeli economy and the exchange rate of the shekel. 

Trade directly affects the health of an economy and the longer the war persists, economic growth is likely to struggle, which will have a direct effect on the performance of ILS. 

While trade may not provide a direct indication of where the shekel will stand throughout 2024, it is nonetheless an important indicator of the direction of the currency. 

ILS outlook for 2024

If we look at the USD/ILS pair and its performance since the start of the war, the pair fell to an annual low of 3.60 towards the end of December 2023, which was followed by a rebound towards the 3.75 mark by the start of 2024. 

The Bank of Israel has sold over $8 billion since the start of the war to keep the shekel’s exchange rates afloat, which was to be expected.

However, the length of the war is likely to place a larger pressure on the Bank of Israel and its foreign currency reserves. 

If the war persists longer, the USD/ILS pair is likely to reach above the 3.8 mark, as the BOI continues to offload USD reserves to manage the situation. 

Some pessimistic estimates also suggest that closing 2024 near or above the 4.00 mark is not off the table, as foreign currency reserves take a toll and the broader Israeli economy suffers through lack of imports and exports. 

Regardless of the specific price point, the Israeli economy and the ILS are bracing for a difficult road ahead, as the government and IDF grapple with the war with Hamas, while trying to avoid major economic damage in the process.