The shekel hit another record today with a representative exchange rate of NIS 4.9680 ¿ a 0.5% rise from yesterday's official daily rate of NIS 4.9440. In the first hours of trading, as the panic peaked, the shekel freefell to NIS 4.9940. Since the representative rate was set, the dollar has traded locally around the NIS 4.96 mark.

In afternoon trading, the shekel regained strength after its close brush with NIS 5. "Everyone was buying ¿ local banks, foreign banks, business sector and speculators," one dealer said. "No one wanted to be caught without dollars. No one was selling."

The shekel today completed a 2% slide since this week's interest rate hike, having lost 13% since the beginning of the year and 17% since the 2% December cut in key lending rates. Dealing rooms estimate this morning¿s demand is coming from the public and business sector. However, mutual funds report they are not seeing public demand for foreign currency funds. Those entities believe the recent shekel devaluation stems from business entities and speculators.

"Exporters end of month currency conversions were just swallowed up in the sea of demand," one dealer said. "It all started when Bank of Israel announced it would hold a press conference. Everyone prepared for at least a 1.5% rate hike, building positions for options expiry." That explains part of the shekel's freefall, as large institutions closed those positions.

Trading went quite well, with buyers and sellers evident in the small spread even when as the dollar closed in on NIS 5. A number of large transactions have boosted the dollar locally in the past few days: deals by Cellcom and Migdal have already been reported, and rumors of new transactions were rife today. One rumor centered on a major holding company which is preparing for transfer of control, and another related to a major government company.

According to the dealers, the shekel's fall at the end of trading yesterday was the result of dollar acquisitions by one of the major banks. "The bank estimated that the shekel lost ground to NIS 4.9440 due to the options expiry, and that the rate would drop after that," one player explained. "When the shekel didn't gain ground, the bank was forced to correct its position and buy dollars, helping to boost the dollar to NIS 4.9550."

The economic entities estimate the general trade is continued shekel devaluation until the level of uncertainty in the country drops. "NIS 5 to the dollar is not so far away," one dealer said, noting the economic plan hasn't been ratified, the Bank of Israel amendment is on the agenda, the security situation has not improved, and international ratings agencies are planning to lower Israel's sovereign credit rating.