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The dollar rallied against the shekel Tuesday, apparently fueled by feisty action from foreign residents.

The official exchange rate of the greenback appreciated by 1.1% on Tuesday to NIS 3.465. The presence of foreign residents among buyers is a change of gait from June, which was characterized by selling among foreign investors. Their activity contributed to pressure on the weakening dollar, traders said.

Behavior of Israeli market players remained unchanged, traders said: they're selling large amounts of U.S. currency.

Sources at the Bank of Israel have decried the theory that speculation, for instance by foreign hedge funds, is responsible for the shekel's surge this year. No, says the bank, it's Israeli investors and companies, through drastically cutting their overseas investments. In some cases, overseas investments were sold off and the cash proceeds repatriated - which increases the supply of foreign currency.

The change in the shekel-dollar market trend occurred on July 10, when the Bank of Israel began buying up $100 million a day. Although foreign currency trade in Israel averages about $2 billion a day, that daily acquisition of $100 million had to impact trade. Since the purchasing began, the dollar has strengthened by 7.3% - one of the sharpest devaluations ever registered for the Israeli currency in such a short period.

A forex market source said Tuesday that central bank intervention had changed investor tastes. "In the past we saw everyone sitting on short dollar positions, hoping to profit from the falling dollar. We are now seeing long positions. The Bank of Israel created this change," the source said. He also noted that the central bank government had shown decisiveness, and investors preferred to go with - rather than against - the trend. Nevertheless, he said, it's difficult to predict whether it will continue in the long term.