Yesterday the shekel's exchange rate returned to NIS 4.62 to the dollar, giving us yet another opportunity to drum it into our heads, with a sledgehammer if necessary:

Nobody not bankers, not traders, not dealers nor speculators nor importers nor exporters nor options mavens nor market tigers nor dowsers nobody, but nobody, has the shred of a clue whence the currency market.

When the shekel weakens, somebody will always pipe up and say, "Told you so!" and when it reverses course, somebody else will gloat, "Said it would." Truth is, they just got lucky. The shekel-dollar rate goes up and it goes down. It's all a matter of probabilities.

Everybody thinks they know why it went up or down, in retrospect. But even if you got it right one time, that doesn't mean your luck will hold in the next round, because it is virtually impossible to foresee the behavior of the foreign currency market.

It isn't a local matter. Tens of thousands of people around the world make their living from currency trading in dollars, euros, yens, Swiss francs. All are heavily armed with pinpoint predictions by analysts, bankers, hedge fund managers, chartists and macro-economists. No self-respecting financial institution would let a month or quarter pass without releasing its forecasts for the crosses.

But the truth is that half their predictions prove wrong. Few manage to hit the bull's-eye over time. And hitting it in the past is no guarantee of repeating the performance in the future.

The currency market is the most complex, and extensive, in the world, which is exactly why it can't be predicted. Usually, at any given moment it reflects all the information available to the markets. From time to time boy-wonders pop up who successfully predicts the direction of the dollar, or euro but they flare and fizzle out. They always, always fizzle out.

Three months ago, when the shekel was sinking rapidly toward NIS 5 to the dollar, currency traders, analysts and bankers shook their highly-educated heads and explained that it was bound to cross that benchmark and move onto NIS 5.5. Their explanations were taken as gospel, especially as some had banked on the shekel's sinking back when it was trading at NIS 4.2 or NIS 4.5 to the dollar. They had hit the bull's eye and turned into overnight oracles.

But they were wrong, of course. That's the way it goes on the currency market.

Not that the bankers suffered from their miscalculation: As the dollar surged from NIS 4.5 to NIS 5, they pushed foreign currency-linked mutuals to their clients, explaining that valued clients must protect themselves, and collected their purchase commissions and management fees.

Now, with their valued clients dumping their forex-mutuals at a loss, the banks are pulling a grave face and telling them they should, because they'll sleep better at night which teaches us that the way to beauty sleep isn't valium, it's a few robust bank commissions.

Now, looking back, with the shekel having rebounded by more than 7% inside a month, we can explain it perfectly well: monetary policy is, at the end of the day, a powerful tool with the capacity to restore financial stability. Also, interest rates of 7.5% and more above that on the dollar is pretty compelling too, especially while the economy is spiraling down the john, the security situation is souring, and the papers blare about nuclear arsenals.

The second explanation is that in the currency market, the key parameter is investor confidence. Note that for a couple of months, the shekel has been regaining ground while the economy keeps eroding: the only thing that's changed is that the public thinks or expects that the Bank of Israel and Finance Ministry will handle their policies more responsibly.

Now, having explained that trying to predict currency market trends is an utter waste of time, we cannot close without making a prediction. In the absence of any changes in the political sphere, unless the government genuinely slashes its budget and restores price stability then August 2002 will go down as the month you had a great chance to replace your shekels with dollars.

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