The dollar closed down 0.5% with a representative exchange rate of NIS 4.72 on Tuesday, giving up earlier gains that had hit NIS 4.78 at opening.

The dollar began to quickly drop after Bank of Israel Governor David Klein announced he doesn't believe it is possible to persist with short-term low interest rates when long-term interest rates do not decrease.

Klein warned the public against the risk involved in acquiring dollars. The currency market interpreted this as an attempt to calm the market before raising interest rates.

The bank said that today there is no rate of exchange target that would prompt the bank to intervene in forex trade. The bank said that even had there been such a target, it would not have been possible to enforce it contrary to market forces.

Dealers noted the very high volume of trade. One dealer said that the market responded belatedly to Klein's announcement because it caused confusion and was difficult to interpret. The dealer said that financial managers didn't understand whether the governor was going to raise interest rates, or whether he was trying to calm the market.

The currency market is awaiting the Friday publication of the January consumer price index. Economic entities anticipate a 0.8% climb, compared with estimates of a rise of 0.7% to 0.9%. A climb higher than this range could lead to weakening of the dollar against the shekel, due to the probability of increased lending rates.

At 16:00 the dollar was trading at NIS 4.71.

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