The shekel advanced strongly against the dollar and moved to a fresh 3.5-month high on Monday as the U.S. currency took a beating worldwide.
The shekel's representative rate was set at 4.6700 to the dollar, its strongest level since March 25 and up 1.2% from Friday's 4.7280.
Dealers said the dollar was now rubbing up against a strong support level.
Just a month ago, the shekel had plunged to an all-time low of nearly 5.0 to the dollar but relative calm in the security situation and renewed confidence in the government's ability to deal with the country's economic woes has lit a fire under the shekel.
The dollar was hit across the globe on Monday, as the euro traded above parity for the first time in more than two years. The dollar also sank against the yen, sterling and Swiss franc as investors worldwide are dumping the U.S. currency in the wake of a string of U.S. corporate accounting scandals.
Dealers in Israel said the shekel received a lift from a lull in Palestinian-Israel violence, with no Palestinian suicide bombings inside Israel the last month, and optimism that the 2003 state budget will be fiscally responsibile.
"There's an improved outlook on the political front," Daniel Hass, a senior dealer at Bank Hapoalim, told
. "And the overall market is still optimistic and pleased with the working relationship between the government and the Bank of Israel. Included in that is promises of fiscal discipline."
The Finance Ministry has proposed steep cuts to the 2003 budget to keep the deficit from rising as revenues have fallen amid a domestic economic recession. At the same time, dealers said a more than seven-point differential between Israeli and U.S. official interest rates was underpinning the shekel.
Later in the day, at 17:00 - 14:00 GMT - the government will publish the June consumer price index. The market expects a 0.7% rise but the CPI is expected to post negative readings, for the most part, the rest of the year.
Last month the shekel weakened to an all-time low of 4.9940 to the dollar but the Bank of Israel raised its key lending rate by 2.0percentage points for the third time in a month to 9.1 percent to curb inflation sparked by the weakening shekel.
The basket of foreign currencies was set at 4.9178 shekels compared with 4.9573 on Friday.
The shekel was set at 4.0288 shekels per 100 yen compared with 4.0481, against the euro at 4.6824 shekels against 4.6748 and against the pound at 7.3018 versus 7.3277.
After the setting of the official rate, the shekel was at 4.6762 to the dollar.