The shekel is sagging Monday on escalating violence, after 13 people were killed in a series of terror attacks on Sunday.

Options trade on Sunday had reflected an 0.4% gain by the dollar against the shekel. However, as of writing the dollar is up 0.25% from its Friday representative rate, to NIS 4.728.

"Usually, when the dollar gains ground on security issues, it corrects in the following days," said a dealer, estimating that a resumption of calm will bring the dollar back down toward NIS 4.70.

Foreign investors are long on the dollar, say dealers, indicating they expect the shekel to continue to lose ground. But many dealers see the foreign investors closing their positions when the dollar reaches NIS 4.75.

"Hanging onto dollars has become very expensive because of the wide interest rate gap (between the dollar and shekel - 7.35% - LK)," said the dealer.

A rate cut in the United States would provide more support for the shekel, dealers say.

First International Bank of Israel analyst Hezi Gutman estimates that if interest rates stay put, the dollar could climb to NIS 4.8 in the local market by year-end, and to NIS 4.9 by mid-2003. That estimate does not factor in military action in Iraq, or a change in Israel's security situation.

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