Why the Israeli shekel is outperforming in 2026

USD/ILS is around 3.01, down roughly 10% over the year even though the Bank of Israel has been cutting rates. When a currency strengthens while its own rate advantage narrows, the story is about risk and flows rather than carry. Here is what the reporting says, with sources attached.

A falling risk premium

The clearest driver is risk. Through the first half of 2026, signs of de-escalation and ceasefire around Iran pulled Israel's risk premium down toward where it sat before October 2023. The shekel reached a 33-year high near 2.90 per dollar in early May on that optimism, as Investing.com reported. Bank of Israel Governor Amir Yaron said the strength reflected the resilience of the Israeli economy and a lower risk premium, alongside a broadly weaker dollar.

Strength without a rate advantage

What makes the shekel interesting in 2026 is that it gained while its interest-rate appeal shrank. The Bank of Israel cut its benchmark to 3.75% in late May 2026 and again to 3.50% in July, per Trading Economics. Normally a rate cut is a headwind for a currency. Here the central bank could cut precisely because the strong shekel was already doing disinflationary work, with inflation steady around 1.9%. A currency that rises as its carry narrows is being pushed by something other than yield.

The flows underneath

That something is capital flows. Israel's technology sector kept drawing foreign currency in, and the planned Google acquisition of the cybersecurity firm Wiz reinforced expectations of substantial dollar inflows that convert into shekels, according to Globes. On top of that, Israeli institutional investors holding large overseas portfolios have been repatriating gains: as US equities rallied hard through 2026, those institutions sold foreign stock and converted dollars back into shekels, a standing source of appreciation pressure that Globes described around the May rate decision.

Part of the move is also simply the other side of a soft dollar. The Bank of Israel governor listed broad dollar weakness as one of the structural forces behind the shekel in 2026, alongside the lower risk premium and the equity-linked institutional flows. So the shekel is both strong on its own merits and lifted by a dollar that has been on the back foot against several currencies this year.

What it looks like in the data

In our history USD/ILS sits around 3.01, down close to 10% over the past year, which makes the shekel the strongest performer across the 33 pairs we track. As with every pair, the rate carries its source and market_session, so a mid-week consensus rate is labeled differently from a weekend or a daily reference fix. During a fast repricing, that label is the difference between a number you can trust and one you cannot.