(Bloomberg) -- Options traders are the least pessimistic in three years on Israel’s currency now that a ceasefire with Hamas has begun in Gaza.
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The shekel’s three-month risk reversals have strengthened to the tightest level against the dollar since 2021. They still signal bearish bets on the currency are more expensive than bullish wagers, but the gap between them has narrowed. That suggests an improving outlook relative to most other currencies in a basket of expanded majors tracked by Bloomberg.
Israel’s bonds and stocks have rallied since November, when a separate ceasefire between Israel and Hezbollah — another Iran-backed militia based in Lebanon — went into effect.
With the latest truce, investors anticipate the pause in fighting on both fronts will relieve the Israeli economy, which has been weakened by war over the past 15 months, and help calm the wider Middle East.
There’s no guarantee hostilities have ended. The Lebanon ceasefire expires in a week and, while it may be extended, neither Israel nor Hezbollah has confirmed that. The truce in Gaza, meanwhile, may be especially difficult to sustain, let alone turned into a formal peace. Within Israel, many politicians are wary of the deal and say the government has to continue the war until Hamas is totally destroyed.
“We see the fragile ceasefire deal as unlikely to reduce regional risks,” Tellimer Research’s emerging-market economist Jamie Fallon wrote in a note.
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