Finance Minister Benjamin Netanyahu, currently in the U.S., said yesterday in an interview with Army Radio, "The treasury does not intervene in the exchange rate, but there is no doubt that there is a strong expression of confidence in the shekel and in the government's economic policy."

The shekel is currently trading at an 18-month high against the dollar. Yesterday's representative rate was set at NIS 4,353, down 0.02 percent on Monday. The exchange rate, together with negative inflation rate for May, has upped the pressure to cut interest rates.

"I have no doubt that the currency exchange will calm down at this rate, if we stick to the economic plan and if the Bank of Israel, as it has promised, continues to lower interest rates as we reduce the deficit," Netanyahu continued. "The expectation is that Bank of Israel Governor David Klein will continue to cut lending rates."

Treasury director-general Ohad Marani was more blunt in putting pressure on the central bank, telling Israel Radio: "The low shekel-dollar rate is bad for the economy, and monetary policy involving significant interest rate reductions should be implemented."

Tel Aviv financial markets had another sunny day yesterday, taking their cue from their European counterparts, weekend gains on Wall Street and market players' estimates regarding progress in talks with the Palestinians. Leading indices ended up 1-2 percent. The representative dollar exchange rate was set a NIS 4.353, while the Maof-25 blue chip index closed at 436 points - close to the highest level it has seen all year. The broader TA-100 closed at 446 points - an 18-month high.

The surprising part of the shekel's climb wasn't this week, but last. With terror attacks, botched targeted killings and rifts in the peace process, the big surprise was that the shekel barely budged, ending the week at NIS 4.40. The security calm of the past few days could therefore inject the shekel with renewed strength.

The decisive variable in shekel-dollar trade is still the peace process. Any event that worsens the situation, like a terror attack, can weaken the shekel. On the other hand, any progress on the road map can boost its strength.

But not only political events impact the currency market. As time goes by, it appears the economy is managing to overcome the toughest times - starting with the budget cuts, which the finance minister managed to get ratified with relative quiet, continuing with the U.S. loan guarantees, and ending with the treasury's successful $750 million bond offering last week.