Terror escalation weakens shekel

The shekel sank against the dollar in the options on Sunday, as violence wracked the nation.

At least nine people were killed and several dozen wounded in a Hamas attack on a bus in northern Israel Sunday morning. Later in the morning a Palestinian gunman killed three people by the Old City of Jerusalem. Four other people were badly hurt in two separate attacks in Samaria later in the day.

The options price the dollar at NIS 4.732, about 0.32% above its representative rate of Friday, which is NIS 4.717.

During trade the dollar peaked at a gain of 0.45% against its Friday official rate.

Dealers say that Knesset support for the tight budget that squeaked through government last week will help support the shekel. However, further escalations in the violence will serve as a counter-weight, bolstering foreign currency.

Meanwhile, disappointing growth figures for the United States raise expectations that the Federal Reserve will leave the rates at 1.75% for several months more. Locally, dealers say that the wide interest rate gap between the dollar and shekel 7.35% - is a major source of strength for the local currency.

"The data on the Israeli economy is very negative," said one dealer, pointing out that Moody's is threatening to downgrade Israel's banks. Coupled with the deteriorating security situation, the dollar would have surged back to NIS 5 if not for the wide interest rate gap, the dealer said.

A technical analysts by Union Bank economists shows that the dollar will range from NIS 4.68 to NIS 4.79 this week. There is a resistance level at NIS 4.741, they add, and another at NIS 4.8. There is a support level for the dollar at NIS 4.66.

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