The dollar sank by 1.1% against the shekel to NIS 3.997 in midday Monday foreign exchange trading, the first time the American currency has traded under NIS 4 since March of 2007.

Analyst Shmuel Berger of Mirvahim Capital Markets doesn't see the USD rallying before the third quarter of the year.

In world markets the dollar is inching down by a lesser 0.1%, as of midday Monday, to 1.36 per euro.

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"Ten days ago the dollar's drop stopped at around NIS 4. It then rebounded a bit," Berger says, noting that the shekel weakened before the release of the Winograd report.

Financial experts and investors had been worried that the investigation into the functioning of the government and the military during the Second Lebanon War would destabilize Israel's economy as well as its political sphere.

However, despite the probe's strong criticism of the prime minister and the defense minister, and in the face of mass protest calling for their resignation, the shekel promptly rallied.


Had Prime Minister Ehud Olmert resigned, the shekel might have weakened, Berger said.

According to Berger, if there is a "time bomb" in dollar-shekel rates, it is in the high prices of fixed-income government bonds, which are offering low yields by international standards.

"Inflation in Israel is being marketed as under-inflation, and that's a mistake," Berger says, predicting that inflation will explode in the months to come, leading the Bank of Israel to stop lowering interest rates.