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1. The Exchange Rate
The shekel strengthened against the dollar, in parallel with the dollar's weakness against global currencies.
The shekel appreciated by about 2.1 percent against the dollar and by about 0.2 percent against the euro during September. 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 appreciated by about 0.8 percent.
In September, the dollar weakened against most global currencies—including by about 2.6 percent against the Swiss franc, by about 1.8 percent against the euro, by about 0.4 percent against the Japanese yen, and by about 3.7 percent against the British pound.
2. Exchange Rate Volatility
Actual volatility of the exchange rate increased in parallel with its implied volatility.
The standard deviation of changes in the shekel-dollar exchange rate, which represents its actual volatility, increased in September by about 1.5 percentage points to 9.6 percent, compared with 8.1 percent in August.
The average level of implied volatility in over the counter shekel-dollar options––an indication of expected exchange rate volatility––increased to 9.9 percent at the end of September, compared with 8.9 percent in August.
In September, the implied volatility in foreign exchange options in emerging markets increased to 10.9 percent, compared with 10.3 percent in August. In contrast, the implied volatility in foreign exchange options in advanced economies declined to 9 percent in September, compared with 9.4 percent in August.
3. The Volume of Trade in the Foreign Currency Market
Average daily trading volume increased, in parallel with an increase in nonresidents’ share of overall trading volume.
The total volume of trade in foreign currency in September was about $69 billion, compared with about $82 billion in August. Average daily trading volume increased by about 24 percent in September, and reached about $4.6 billion.
The volume of trade in spot and forward transactions (conversions) was about $27 billion in September, compared with $31 billion in August. The average daily trading volume in those transactions increased in September by about 27percent compared with August. During September, the Bank of Israel bought $895 million through conversion transactions[1], of which $295 million were bought as part of the purchase program intended to offset the effect on the exchange rate of natural gas production.
The volume of trade in over the counter foreign currency options (which are not traded on the stock exchange) totaled about $5.9 billion in September. The average daily trading volume in those options in September was $397 million, a decline of about 12 percent from its level in August.
The trading volume of swap transactions was about $36 billion in September. Average daily turnover increased from the previous month, to around $2.4 billion.
Nonresidents' share of total trade (spot and forward transactions, options and swaps) increased by about 5 percentage points in September to about 40 percent.
[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.
