The Bank of Israel published its quarterly review of Israel’s foreign currency market for the third quarter of 2025, showing the shekel strengthening against major currencies alongside lower realised and expected shekel–dollar volatility. The update links the shekel’s appreciation to the ceasefire in Gaza, which contributed to a decline in Israel’s risk premium. Over the quarter, the shekel gained about 2.0% against the US dollar, 1.9% against the euro and 2.6% in nominal effective terms against the currencies of Israel’s main trading partners. Realised shekel–dollar volatility (average standard deviation of exchange-rate changes) fell 1.7 percentage points to 9.4%, while implied volatility in over-the-counter shekel–dollar options declined 0.5 percentage points to about 9.3% by quarter-end. Activity across market segments was mixed: institutional investors shifted from net purchases of about USD 0.1 billion in the previous quarter to net foreign exchange sales of about USD 9.2 billion, nonresidents recorded net sales of about USD 4.9 billion, and the business sector increased net purchases to about USD 7.5 billion, while banks moved to net purchases of about USD 1.2 billion. Average daily trading volume vis-à-vis the domestic banking system fell about 13% to USD 12.3 billion, mainly due to fewer swap transactions, and nonresidents’ share of total trading volume against the domestic banking system declined to about 38%. In estimates combining domestic-bank and foreign-reporting-entity data, nonresidents accounted for about 86% of spot and forward trading volume (excluding swaps and options), and nonresident-to-nonresident trades represented about 78% of the volume, with a daily average of about USD 15.5 billion.

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