By Marc Jones
LONDON, Aug 27 (Reuters) – Israel’s October 27 election could move the shekel by as much as 3% in either direction as investors weigh the prospects of political change after years under Prime Minister Benjamin Netanyahu, a JPMorgan report published on Thursday said.
The U.S. bank’s analysts said market odds increasingly point to an opposition victory led by former military chief Gadi Eisenkot, although they added that the arithmetic remains complex and that polls have often underestimated Netanyahu’s Likud party.
While major shifts in fiscal or economic policy are unlikely, the bank said the election result was likely to impact Israel’s relations with its Western allies and the perceptions of international investors regarding Israel’s judicial system reforms and policies in the West Bank and Gaza.
It estimated that under a base assumption of an opposition victory — to which Thursday’s report ascribed a 55% probability — the shekel could strengthen by 2% to 3% as concerns about institutional reforms ease.
In contrast, another win for Netanyahu, who has dominated Israel’s political landscape for the past two decades, could cause a 3% drop, while a third scenario of a broad coalition and prolonged political uncertainty would keep the currency broadly steady.
The shekel has previously shown sensitivity to institutional concerns. JPMorgan noted how it had weakened nearly 10% against the dollar between early 2023, when strongly contested judicial reforms were proposed, and that year’s October 7 Hamas attack.
Despite the differing election scenarios, the bank said the overall risk-reward was broadly balanced at this stage, given the strength of Israel’s technology sector, a favourable external backdrop and potential resistance from the Bank of Israel to excessive currency strength.
It said current “implied volatility” FX market pricing only pointed to about a 1% move around the election, which the bank’s analysts said “seems low”.
(Reporting by Marc JonesEditing by Gareth Jones)
