Israel and Hamas reach ceasefire agreement, Shekel exchange rate prospects greatly improved.

Due to Israel and Hamas beginning to implement their ceasefire agreement in the Gaza Strip, foreign exchange market options traders are displaying the lowest level of pessimism towards the Israeli shekel in three years. Traders generally believe that the ceasefire between Israel and Hamas will alleviate economic pressure on Israel, promote rapid economic recovery, and significantly ease the long-standing geopolitical tensions in the Middle East. Statistics show that the "risk reversal indicator" for the Israeli shekel three-month forward has risen to the most tense level against the US dollar since 2021. Although this indicator still shows that the cost of betting against the Israeli shekel is higher than betting for it, the gap between the two has significantly narrowed. This indicates that the outlook for the shekel exchange rate has improved significantly compared to most other major currencies in a basket tracked by Bloomberg. Since another separate ceasefire agreement between Israel and Hezbollah (another Iran-backed Lebanese militia group) took effect last November, bond and stock prices in Israeli financial markets have been soaring. With the latest ceasefire agreement between Israel and Hamas officially reached, investors generally expect that the pause in hostilities between the two sides will alleviate the Israeli economy, which has been weakened by war over the past 15 months, and help ease the long-standing geopolitical tensions in the Middle East. However, it is uncertain whether the regional hostilities in the Middle East have ended. The Lebanon ceasefire agreement is set to expire in a week, and while it may be extended, neither Israel nor Hezbollah have officially confirmed this. Meanwhile, maintaining the ceasefire agreement in the Gaza Strip may prove to be very difficult, not to mention transforming it into a formal peace agreement. Within Israel, many political figures are cautious about the agreement and believe that the Israeli government must continue the war until Hamas is completely destroyed. "We believe that the fragile ceasefire agreement is unlikely to reduce geopolitical risks in the region." wrote Jamie Fallon, an emerging markets economist from Tellimer Research, in a report.