The shekel is rebounding Wednesday on thin trading volumes, with the dollar sagging 0.25% from its representative rate of yesterday.

The dollar's gain against the shekel on Tuesday was attributed to the resumption of terror as an attack on an Israeli bus by the Emanuel settlement in the West Bank killed seven and wounded 25, many mortally.

Sources at the Excellence brokerage predict that the shekel will keep climbing to about NIS 4.62 to the dollar. The dollar meets resistance at NIS 4.70, they say.

Events such as the Emanuel attack affect trade only in the immediate term, qualified Excellence dealer Guy Magen. Meanwhile, the high interest rate on the shekel makes it very expensive to hold dollars, he added. "Nobody is rushing to buy dollars," he said.

The currency market is closely tracking the government's fiscal policy, and the progress of the law capping private bills by Knesset members. The bill has passed its first reading. Although the law will remain in force for only a year, its enactment would help stabilize the shekel, dealers say.

"Shalom faces a hard test," said one dealer. "If he manages to push through an eight to nine billion shekel budget cut, including a reduction in defense spending, that would be an achievement."

Market expectations are that the Bank of Israel will not change interest rates for August, and that Governor David Klein will leave the nominal lending rate on central bank sources at 9.1%.