Israel's October Vote Could Swing Shekel by Up to 3%

Israel's upcoming election on October 27 carries the potential to move the shekel by as much as 3% in either direction, according to a new analysis from JPMorgan. The bank's assessment comes as investors weigh the possibility of a shift in political leadership after Prime Minister Benjamin Netanyahu's long tenure.

JPMorgan analysts assign a 55% probability to an opposition victory led by former military chief Gadi Eisenkot. Under that scenario, the shekel could strengthen by 2% to 3%, as concerns over institutional reforms ease. However, the bank cautions that the political arithmetic remains complex and that opinion polls have historically underestimated support for Netanyahu's Likud party.

A fourth consecutive win for Netanyahu, who has dominated Israeli politics for two decades, could trigger a 3% depreciation of the currency. A third possibility — a broad coalition leading to prolonged political uncertainty — would likely leave the shekel broadly stable.

The bank notes that the currency has shown sensitivity to institutional issues in the past. It weakened nearly 10% against the dollar between early 2023, when contentious judicial reforms were proposed, and the October 7 Hamas attack that year.

Despite the range of scenarios, JPMorgan sees the overall risk-reward as broadly balanced. Support from Israel's strong technology sector, a favorable external backdrop, and potential intervention by the Bank of Israel against excessive currency strength all factor into this view.

The bank also points out that current market pricing, as reflected in implied volatility, suggests only about a 1% move around the election — a level JPMorgan analysts describe as "seemingly low" given the stakes.