The U.S. Congress found a way out for now from the perils of the fiscal cliff, but the dollar lost heavily against the shekel and other world currencies Wednesday, with traders saying the shekel's appreciation is not yet over.
Analysts warned that the strong shekel will hurt the price competitiveness of Israeli exporters and may leave Bank of Israel Governor Stanley Fischer little choice but to intervene in the market. The shekel representative rate was fixed at NIS 3.7140 to the dollar on Wednesday, marking a 10-month low, after the greenback lost about 0.5% of its value in the first day of 2013 trading. Against the euro, the shekel lost ground, shedding 0.1% to a representative rate of NIS 4.90276.
Globally, the dollar slid against high-yielding currencies such as the Australian dollar, while the yen sold off on Wednesday after U.S. lawmakers forged a last-minute deal to avert huge tax rises and spending cuts, fueling demand for riskier investments.
Investors tend to sell the dollar and yen, both highly-liquid currencies, when risk appetite is strong.
"I believe the dollar will continue to weaken against the shekel as part of the global trend of dollar weakness," said Hezi Yanushavsky, head of research at ATrade. "Money will move out of more secure assets to higher-risk, higher-yield assets and in light of the fact the world stock markets have been rising in recent days."
He said that if the dollar slips below NIS 3.69, the Bank of Israel will begin talking about intervening in the currency market, as it did starting in March 2008 when the U.S. currency weakened to as low as NIS 3.40.
Vered Yitzhaki, CEO of Priko Risk Management, said the dollar was showing weakness out of traders' concern that the agreement approved by U.S. lawmakers failed to solve Washington's long-term fiscal problems. Observers said the agreement, approved late on Tuesday by the Republican-led House of Representatives after a bitter political struggle, set the stage for political showdowns over the next two months on spending cuts and raising the nation's limit on borrowing ceiling.
"Traders in the market expressed their dissatisfaction with the final agreement, which was reflected in the dollar-selling wave worldwide and in the local market," Yitzhaki said. She termed NIS 3.70 a resistance level.
Reuters contributed to this report.
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