The inflation data published yesterday (Thursday) which was a pleasant surprise sowed great optimism in the markets. Wall Street indices rose sharply and bond yields fell: the 10-year bond yield fell by 31 basis points to 3.82% and the two-year bond yield was cut by 29 points to 4.33%.

Another effect of the inflation data and the sharp increases on Wall Street is the drop in the value of the dollar in the world, and also against the shekel. Last night the American currency lost over 2% against the basket of currencies, the sharpest daily decline since 2009.

The dollar, which is considered a safe haven for investors, reached a 20-year high this year against the global basket of currencies, and last month lost over 5%. In total, the dollar has risen since the beginning of the year by about 11%.

As of this morning, the dollar has weakened by 0.5% against the euro, so that one dollar is now equal to 0.97 euros. Against the pound, the dollar weakened by about 0.1% – and is now worth 0.85 pounds. The shekel strengthened sharply this morning against the American currency and rose by more than 3%. Currently, the American currency is trading at a ratio of 3.41 shekels – a month and a half low.

Fluctuations in the stock market have a big impact on the exchange rate. This is due to the high exposure of the Israeli institutional entities to investments abroad. When the markets rise, the exposure to foreign exchange also increases, and when institutions do not want to increase exposure, they sell foreign exchange, and vice versa – when the markets fall and the entities need to increase collateral (part of the exposure is through futures contracts), therefore they purchase dollars and thus cause the dollar rate to rise against the shekel.