Devaluation reined in: Dollar rate now NIS 4.323

Several banks face millions of shekels in losses as Monday's options expiry catches them off guard.
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The foreign exchange market saw a frenetic day of trading, the direct continuation of yesterday evening¿s nerves. Demand began soaring yesterday on reports that Bank of Israel governor David Klein will slash key lending rates by 2% on Sunday.

Today's representative rate was set at NIS 4.323, about 1.2% above yesterdays rate, set at about 4:00 pm.

Uncertain market conditions left banks this morning quoting spreads as high as 3 agorot between buy and sell rates -- ten times higher than usual. By early afternoon the spread decreased to 1 ¿1.5 agorot.

The rise in the shekel exchange rate began at 8:00 last night, with the television news broadcast reporting the expected rate cut and the trend continued early this morning as the dollar crossed the NIS 4.37 mark more than 2% above yesterday¿s 4.272 representative exchange rate.

Around 10:00 am however, the frenzy abated and the dollar traded the rest of the morning in the NIS 4.32-4.34 range.

Foreign exchange traders noted today that some of the banks, whose activities constitute a significant portion of the market, bet against the dollar leading up to the Monday expiry of options, assuming the expiration would be met with a NIS 4.25 dollar rate. The dollar's rapid rise could cost those banks millions of shekels.