Israel election could swing shekel by up to 3%, JPMorgan estimates

New Israeli Shekel banknotes are seen in this picture illustration taken November 9, 2021. REUTERS/Nir Elias/Illustration Purchase Licensing Rights , opens new tab LONDON, Aug 27 (Reuters) - Israel's October 27 election could move the shekel by as much as 3% in either direction as investors weigh ​the prospects of political change after years under Prime Minister Benjamin ‌Netanyahu, a JPMorgan report published on Thursday said. The U.S. bank's analysts said market odds increasingly point to an opposition victory led by former military chief Gadi Eisenkot, ​although they added that the arithmetic remains complex and that polls ​have often underestimated Netanyahu's Likud party. Sign up here. While major shifts in fiscal ⁠or economic policy are unlikely, the bank said the election result was ​likely to impact Israel's relations with its Western allies and the perceptions ​of international investors regarding Israel's judicial system reforms and policies in the West Bank and Gaza. It estimated that under a base assumption of an opposition victory — to which Thursday's ​report ascribed a 55% probability — the shekel could strengthen by 2% ​to 3% as concerns about institutional reforms ease. In contrast, another win for Netanyahu, who has ‌dominated ⁠Israel's political landscape for the past two decades, could cause a 3% drop, while a third scenario of a broad coalition and prolonged political uncertainty would keep the currency broadly steady. The shekel has previously shown sensitivity ​to institutional concerns. JPMorgan ​noted how ⁠it had weakened nearly 10% against the dollar between early 2023, when strongly contested judicial reforms were proposed, and ​that year's October 7 Hamas attack. Despite the differing election ​scenarios, the ⁠bank said the overall risk-reward was broadly balanced at this stage, given the strength of Israel's technology sector, a favourable external backdrop and potential resistance ⁠from ​the Bank of Israel to excessive currency strength. It ​said current "implied volatility" FX market pricing only pointed to about a 1% move around the ​election, which the bank's analysts said "seems low". Reporting by Marc Jones Editing by Gareth Jones Our Standards: The Thomson Reuters Trust Principles. , opens new tab Suggested Topics: Currencies X Facebook Linkedin Email Link Purchase Licensing Rights Marc Jones Thomson Reuters Marc Jones is a senior global markets correspondent based in London with a focus on economics, central banks, policymakers, and crises. Previously he worked in Frankfurt covering the European Central Bank at the height of the euro zone turmoil, the UK companies desk during the initial phase of global financial crash. He started his Reuters career on the sports desk covering everything from soccer to cycling. Email X Linkedin