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The foreign currency market continues to be very volatile and after dropping at opening to NIS 4.64, the dollar is now trading back up near yesterday¿s representative exchange rate ¿ NIS 4.70.

Dealers found it hard to explain the shekel¿s morning strength, particularly in light of escalating violence. Dealers said that the banks are behind most of the trading. Bank Leumi's foreign currency dealing room said that the volatility is likely here to stay, as strong fluctuations are natural in markets with low interest rate gaps. For this reason, fluctuations between NIS 4.60 and NIS 4.75 these days, are similar to a range of NIS 4.20 to NIS 4.22 two months ago.

Bank Leumi said that no buying spreads opened this morning and they stand at some 80 basis points. The bank said that in a highly volatile market, it cannot give quotes at lower spreads. The bank also noted that a decision on key lending rates is significant for dollar trading, and that if in the past there was market consensus on interest rates, today there are various views on how interest rates are likely to change. The bank said that some dealers believe interest rates will remain unchanged, while others anticipate a 1% hike.

Prico Management, which specializes in foreign currency trading, relates the weakening dollar to supply from the business sector ahead of the weekend, and the end of the month. Next Tuesday and Wednesday the dollar rate of exchange will not be set because of the Jewish holiday Purim.

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