1. The Exchange Rate
The shekel weakened against the dollar, with a mixed trend in the dollar worldwide.
In February, the shekel weakened by about 1.1 percent against the dollar, and strengthened by about 0.15 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 0.2 percent in February. It should be noted that the trend of the shekel vis-à-vis the dollar was uneven in February: Through February 23, the shekel strengthened by 1.7 percent against the dollar, and since then (after the interest rate decision) it depreciated by about 2.8 percent.
In February, the dollar traded mixed against most currencies globally—the dollar strengthened by about 2.9 percent against the Swiss franc, by about 1.25 percent against the euro, and by about 1.35 percent against the Japanese yen. In contrast, the dollar weakened by about 2.1 percent against the British pound.
Since August 2014, the shekel has depreciated against the dollar by about 15.7 percent in total, and depreciated by about 3.8 percent in terms of the nominal effective exchange rate.
2. Exchange Rate Volatility
An increase in actual volatility of the exchange rate, in parallel with an 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 February by about 2 percentage points, to 11.2 percent at the end of the month.
The average level of implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––increased to 11.1 percent at the end of February, compared with 10.2 percent in January.
In parallel, the implied volatility in foreign exchange options in emerging markets increased to an average of 10.3 percent in February, and the implied volatility in foreign exchange options in advanced economies increased to an average of 10.9 percent during the month (see Figure 4).
3. The Volume of Trade in the Foreign Currency Market
Average daily trading volume declined, primarily as a result of a decline in trading volume in options and swap transactions.
The total volume of trade in foreign currency in February was about $123 billion, compared with about $151 billion in January. Average daily trading volume declined by about 14 percent, to about $6.2 billion.
The volume of trade in spot and forward transactions (conversions) was about $44 billion in February. The average daily trading volume in those transactions declined in February by about 5 percent compared with January. During February, the Bank of Israel purchased $1,095 million in spot and forward transactions[1], of which $295 million was as part of the purchasing program intended to offset the effects 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 $9 billion in February. The average daily trading volume in those options was about $460 million in February, a decline of about 18 percent from January.
The trading volume of swap transactions was about $69 billion in February, compared with $89 billion in January. Average daily turnover declined by about 18 percent from the previous month, to around $3.5 billion.
Nonresidents' share of total trade (spot and forward transactions, options and swaps) was unchanged in February, at about 38 percent.
Graphs & Data[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.