Graphs & Data1. The Exchange Rate
The dollar strengthened against the shekel, in parallel with the strengthening dollar worldwide.
In August, the shekel weakened by a significant rate of about 4 percent against the dollar and by about 2.5 percent against the euro. 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 weakened by about 3.3 percent.
In August, the dollar strengthened against most currencies by lower rates—including by about 1.5 percent against the euro, by about 0.7 percent against the Swiss franc, by about 1.9 percent against the British pound, and by about 1 percent against the Japanese yen.
2. Exchange Rate Volatility
A marked increase in actual volatility of the exchange rate along with a more moderate increase in the implied volatility of the exchange rate.
The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, increased in August by about 3.5 percentage points to 7.3 percent.
The average level of implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––increased more moderately, to 7 percent at the end of August, compared with 5.9 percent in July. This level is still lower than the average level of volatility in the past two years.
At the same time, in August, the implied volatility in foreign exchange options in emerging markets also increased, to 7.5 percent on average. The implied volatility in foreign exchange options in advanced economies increased as well in August, to 6 percent at the end of the month.
3. The Volume of Trade in the Foreign Currency Market
Trading volume in swap and options transactions increased. Nonresidents’ share of total trading volume also increased.
The total volume of trade in foreign currency in August was about $162 billion, compared with about $147 billion in July. Average daily trading volume increased by about 27 percent in August, to about $8.1 billion.
The volume of trade in spot and forward transactions (conversions) was about $44 billion in August, compared to about $34 billion in July. The average daily trading volume in those transactions increased in August by about 50 percent compared with July. During August, the Bank of Israel bought $585 million through conversion transactions[1], as part of the purchasing program intended to offset the effect of natural gas production on the exchange rate.
The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $17 billion in August. The average daily trading volume in those options in August was about $850 million, an increase of about 115 percent from its level in July.
The trading volume of swap transactions was about $100 billion in August, compared with $104 billion in July. Average daily turnover increased by about 12 percent from the previous month, to around $5 billion.
Nonresidents' share of total trade (spot and forward transactions, options and swaps) increased in August, to about 31 percent, compared with about 25 percent in July.
Forex transactions with domestic banks, by instruments and sectors
($ million)
Conversions (1) |
Swaps[2] (2) |
Cross Currency swap[3] (3) |
Options[4] (4) |
Total volume of trade (1)+(2)+(3)+(4) | ||
August
2014
(Not final) |
Total |
44,467 |
100,431 |
228 |
17,072 |
162,198 |
Daily average (20 days) |
2,223 |
5,022 |
11 |
854 |
8,110 | |
Nonresidents |
20,047 |
22,646 |
70 |
8,179 |
50,942 | |
of which Foreign financial institutions |
19,322 |
21,790 |
70 |
8,064 |
49,246 | |
Residents |
24,420 |
77,785 |
158 |
8,893 |
111,256 | |
of which Real sector |
7,206 |
5,827 |
10 |
4,294 |
17,337 | |
Financial sector |
4,138 |
42,981 |
0 |
2,273 |
49,392 | |
Institutions (incl. insurance companies) |
4,299 |
7,296 |
0 |
215 |
11,810 | |
Individuals and provident funds |
1,105 |
11,055 |
0 |
620 |
12,780 | |
The Bank of Israel |
585 |
0 |
0 |
0 |
585 | |
of which within the program to offset the gas effect |
585 |
0 |
0 |
0 |
585 | |
Other[5] |
3,156 |
55 |
0 |
227 |
3,438 | |
Domestic banks[6] |
3,931 |
10,571 |
148 |
1,264 |
15,914 | |
July
2014 |
Total |
34,198 |
103,553 |
501 |
9,129 |
147,381 |
Daily average (23 days) |
1,487 |
4,502 |
22 |
397 |
6,408 | |
Nonresidents |
11,627 |
20,992 |
0 |
4,289 |
36,908 | |
of which Foreign financial institutions |
10,926 |
20,572 |
0 |
4,254 |
35,752 | |
Residents |
22,571 |
82,561 |
501 |
4,840 |
110,473 | |
of which Real sector |
6,812 |
7,433 |
406 |
2,272 |
16,923 | |
Financial sector |
3,490 |
48,136 |
22 |
1,415 |
53,063 | |
Institutions (incl. insurance companies) |
4,552 |
5,391 |
0 |
81 |
10,024 | |
Individuals and provident funds |
828 |
11,187 |
57 |
221 |
12,293 | |
The Bank of Israel |
300 |
0 |
0 |
0 |
300 | |
of which within the program to offset the gas effect |
0 |
0 |
0 |
0 |
0 | |
Other4 |
3,516 |
21 |
0 |
156 |
3,693 | |
Domestic banks5 |
3,073 |
10,393 |
16 |
695 |
14,177 |
[1] This figure reflects transactions by trade date, not settlement date. Therefore, it is not necessarily identical to the data published in the foreign exchange reserves notice, which reflects transactions by settlement date.
[2] Only one leg of the swap, i.e., the nominal value of the transaction (in accordance with the BIS definition)
[3] The exchanged founds through Cross Currency Swap transactions considered for the volume, as one leg only in cases where the two legs offset each other.
[5] Including other entities such as portfolio managers, nonprofit organizations, national institutions, and those not include elsewhere.