The Israeli shekel is likely to consolidate at current levels
against the US dollar in the long run though global events continue
to impact the shekel's trade and could lead to surprises in coming
weeks, dealers in Tel Aviv said on Sunday.
The shekel's official rate on Friday was set at 4.2220 per
dollar, down 0.2 percent from Thursday's rate of 4.2300, the lowest
rate since February 14.
Dealers said volatility in the global market continued to have a
strong influence on the shekel's trade.
"Wobbles in the global market continue to have a strong impact
on the shekel," said Daniel Hass, a dealer at Bank Hapoalim in Tel
Aviv, noting that volatility in global market and that in dollar/
shekel trade were interlinked.
Dealers originally believed the shekel was long-term undervalued
and had said strong capital inflows and a stable domestic market
would continue to push the shekel higher.
The shekel gained some 8 percent appreciation over 2006, and
rose some 7 percent to 8.5-year highs at 3.93 per dollar by mid-
May.
A brief inversion between yields on 10-year Israeli bonds and
10-year US Treasury notes also aided the shekel's rally.
Yields on long-term Israeli bonds had never dropped below yields
on US Treasury notes before.
As the shekel's appreciation seemed unstoppable, Bank of Israel
Governor Stanley Fischer pursued monetary easing in an attempt to
curb Israel's robust currency and lift annual inflation levels back
to within the government's 1 to 3 percent target level.
With about a third of Israeli expenses dollar-linked, the
shekel's appreciation had pushed down annual inflation levels to
minus 0.1 percent for 2006, and minus 1.3 percent in May for the
previous 12 months.
Fischer cut Israel's key lending rate by a cumulative 2
percentage points since last October to stand at 3.5 percent, an
unprecedented 1.75 percentage points below compared with the US
rates.
The shekel has now fully traded in the 7 percent it had gained
over the first 4.5 months of the year.
Dealers widely believe the shekel's sharp appreciation triggered
it to correct to above 4 per dollar, and when it broke through
resistance at 4.11 per dollar, it indicated the shekel had changed
its direction for now.
"Technically we have failed to break back to below 4.11 per
dollar, which is a significant indicator of the shekel's
direction," Daniel Hass said.
He added that the shekel remained under pressure while the
dollar continued to bounce around globally against emerging market
currencies.
Recent dollar-buying sprees that have further pushed the shekel
to above 4.20 per dollar were also encouraged by events in the Gaza
strip.
"Israel's entry into Gaza, following weeks of factional
fighting, might also be influencing people to buy dollars," Daniel
Hass said.
(Xinhua News Agency June 25, 2007)
