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Israel’s foreign currency market in February 2013
1. The Exchange Rate
The dollar weakened against the shekel, in contrast to the dollar's strength against global currencies
The shekel appreciated by about 0.5 percent against the dollar during February, and appreciated by about 3.8 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 strengthened by about 2.2 percent.
In February, the dollar strengthened against global currencies—the dollar appreciated by about 3.4 percent against the euro, by about 4.1 percent against the pound sterling, and by about 2.2 percent against the Swiss franc.
2. Exchange Rate Volatility
Actual and implied volatility of the exchange rate declined
The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, declined in February to 7.4 percent.
The average level of the implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––declined in February to about 8.5 percent, compared with 9 percent in January. This was in contrast to the increase in implied volatility of foreign exchange options to 8.4 percent in emerging markets, and to 8.5 percent in advanced economies, in February.
3. The Volume of Trade in the Foreign Currency Market
There was a decline in average daily trading volume and a decline in nonresidents' share of trading volume
The total volume of trade in foreign currency in February was about $88 billion, compared with about $102 billion in January. Average daily trading volume declined by about 5 percent in February, and reached about $4.6 billion.
The volume of trade in spot and forward transactions (conversions) was about $36 billion in February, compared with $40 billion in January. The average daily trading volume in those transactions declined in February by about 2 percent, compared with January, to about $1.9 billion.
The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $7.7 billion in February, compared with $13 billion in January. The average daily trading volume in those options in February was $408 million, a decline of 36 percent from January.
The trading volume of swap transactions was about $43 billion in February, compared with $48 billion in January. Average daily turnover was essentially unchanged at $2.3 billion in February.
Nonresidents' share of total trade (spot and forward transactions, options and swaps) declined in February to 41 percent, compared with 44 percent in January. The decline derived primarily from a decrease in nonresidents' volume of activity in spot and forward transactions, swaps and options.
