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Fear of escalating hostilities on the northern border has sparked a demand for dollars. The currency market is characterized by volatility Tuesday morning, as it was on Monday, but the shekel has weakened by 0.45% against the dollar. The dollar is now trading at NIS 4.1940, after ending Monday at NIS 4.18.

As mortar bombs rained down on the Israeli town of Sderot Tuesday morning and Israeli forces retaliated with an attack on an Area A zone (which is under full Palestinian control), demand for dollars surged as trade opened, bringing the exchange rate to NIS 4.1920.

Exporters took advantage of the shekel's weakness against the dollar to convert foreign currency into shekels at the favorable rate. They need the shekels to pay VAT by the 18th of the month, tomorrow. Although the conversions moderate the weakening of the shekel, demand for dollars quickly resumed, leading the shekel down.

Sources in the currency market surmise that if the fighting continues, the dollar could return to trade at about NIS 4.20. Chartists note a technical resistance level at NIS 4.24, and say that if the shekel-dollar rate crosses that level, the rate will probably stabilize at about NIS 4.25 to NIS 4.30.