The shekel's losses are moderating and the local currency is now trading off 0.4% at NIS 4.87. At the start of local trade the dollar rose 1% to trade at NIS 4.91 after the government's emergency economic plan did not pass the Knesset¿s first reading last night.

Dealing rooms say demand was high with the opening of trading which led to the rise in the exchange rate. "However, at NIS 4.91, sellers primarily from the business sector hit the market, taking profits, and the dollar is now trading at about NIS 4.88," one dealer told us.

The buy-sell spread on the dollar opened as much as 100 base points to 1 agora this morning, as opposed to the recently prevalent 30-50 base point range. The spread is currently decreasing slightly, but is still higher than the norm.

Managers of the major banks dealing rooms estimate the general trend to be continued shekel devaluation. The currency dealing room manager at Discount Bank notes the currency market responded in a speculative manner with the opening of trade and the shekel did not fall on public dollar acquisitions, but on bank activity.

"The market reacted too strongly. There was no cause for a 5-6 agorot fall against the dollar and that fall is now moderating," said the currency dealing room manager at Bank Leumi. According to him, the market is now calming down and spreads are narrowing. He estimates that Israel's sovereign credit rating will be lowered in the coming weeks, even if the economic plan is ratified by the Knesset. "The market expects the rating reduction, so it will not be a bolt out of the blue, but will the market will certainly react when the official announcement is made," he said. "I do not expect to see NIS 4.70 to the dollar in the near future. The general trend is shekel devaluation, and I do not rule out the possibility of NIS 5 to the dollar." He said the market has not lost liquidity and there are both buyers and sellers at any level.

Discount Bank estimates that trading will continue to be volatile on the difficulty in passing the economic plan, the Bank of Israel amendment, concerns about Israel's credit rating, the security situation, interest rates, and the expiry of dollar options next week.

Discount Bank also asserts that trading currently incorporates a 1% interest rate hike but there are concerns the rise will be a more moderate 0.6-0.7% which would cause the shekel to slide. "If Israel's credit rating is lowered, we will reach NIS 5 very quickly," the bank says.

Investment bank Excellence notes the fact that the economic plan did not pass indicates the government's inability to influence economic matters. Excellence adds that the international ratings agencies have already informed the Ministry of Finance that they are waiting to see how and in what form the economic plan is ratified.