Shekel Drops to Four-Month Low on Concern Europe to Hurt Growth

The shekel weakened to the lowest in four months as demand for riskier assets waned on concern a worsening crisis in Europe may slow Israel’s economic growth.

The shekel dropped 0.4 percent to 3.8313 a dollar at 4:38 p.m. in Tel Aviv. It earlier fell to 3.8358, the lowest since Jan. 17 and is down 1.7 percent this month, the second-best performer among the 10 most-active currencies in Europe, the Middle East and Africa, according to data compiled by Bloomberg. The Dollar Index gained for an 11th day as the European debt crisis boosted demand for safer assets.

Greece’s political deadlock went into a second week after President Karolos Papoulias failed to secure agreement on a unity government and avert new elections. The standoff has reignited concern the country will renege on pledges to cut spending and may decide to leave the euro area. Israel exports almost 60 percent of its goods to the euro region and the U.S.

“The shekel is losing its attractiveness on the back of a slowing global economy and uncertainty about the European debt crisis,” said Adiv Kabiri, senior currency dealer at Gift Asset Management Ltd. in Tel Aviv. “In case the crisis in Europe deteriorates the Bank of Israel may decide to lower interest rates to boost growth.”

Exports Slow

One-year interest rate swaps, an indicator of investor expectations for rates over the period, fell four basis points to 2.43 percent.

The economy will expand an annualized 2.5 percent in the first quarter, according to the median estimate of 11 economists surveyed by Bloomberg. The data is due to be released on May 16. Exports fell in April to the lowest level since December 2010, the Jerusalem-based Central Bureau of Statistics said yesterday.

The yield on the 5.5 percent benchmark bonds due January 2022 was unchanged at 4.53 percent after falling as much as three basis points. Demand for the bonds weakened at an auction as investors sought 3.2 times the 250 million shekels of notes offered compared with 3.7 times at the previous sale on May 8, according to Ministry of Finance data posted on Bloomberg.

The Finance Ministry sold a combined 1.65 billion shekels ($431 million) of debt at the auction today.

The two-year break-even rate, the yield difference between inflation-linked bonds and fixed-rate government bonds of similar maturity, was little changed at 285, implying an average annual inflation rate of 2.85 percent.

The Tel-Bond 40 index of corporate bonds retreated 0.2 percent to 264.84.

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