The Israeli shekel is likely to consolidate at current levels against the US dollar in the long run though global events continue to impact the shekel's trade and could lead to surprises in coming weeks, dealers in Tel Aviv said on Sunday.

The shekel's official rate on Friday was set at 4.2220 per dollar, down 0.2 percent from Thursday's rate of 4.2300, the lowest rate since February 14.

Dealers said volatility in the global market continued to have a strong influence on the shekel's trade.

"Wobbles in the global market continue to have a strong impact on the shekel," said Daniel Hass, a dealer at Bank Hapoalim in Tel Aviv, noting that volatility in global market and that in dollar/ shekel trade were interlinked.

Dealers originally believed the shekel was long-term undervalued and had said strong capital inflows and a stable domestic market would continue to push the shekel higher.

The shekel gained some 8 percent appreciation over 2006, and rose some 7 percent to 8.5-year highs at 3.93 per dollar by mid- May.

A brief inversion between yields on 10-year Israeli bonds and 10-year US Treasury notes also aided the shekel's rally.

Yields on long-term Israeli bonds had never dropped below yields on US Treasury notes before.

As the shekel's appreciation seemed unstoppable, Bank of Israel Governor Stanley Fischer pursued monetary easing in an attempt to curb Israel's robust currency and lift annual inflation levels back to within the government's 1 to 3 percent target level.

With about a third of Israeli expenses dollar-linked, the shekel's appreciation had pushed down annual inflation levels to minus 0.1 percent for 2006, and minus 1.3 percent in May for the previous 12 months.

Fischer cut Israel's key lending rate by a cumulative 2 percentage points since last October to stand at 3.5 percent, an unprecedented 1.75 percentage points below compared with the US rates.

The shekel has now fully traded in the 7 percent it had gained over the first 4.5 months of the year.

Dealers widely believe the shekel's sharp appreciation triggered it to correct to above 4 per dollar, and when it broke through resistance at 4.11 per dollar, it indicated the shekel had changed its direction for now.

"Technically we have failed to break back to below 4.11 per dollar, which is a significant indicator of the shekel's direction," Daniel Hass said.

He added that the shekel remained under pressure while the dollar continued to bounce around globally against emerging market currencies.

Recent dollar-buying sprees that have further pushed the shekel to above 4.20 per dollar were also encouraged by events in the Gaza strip.

"Israel's entry into Gaza, following weeks of factional fighting, might also be influencing people to buy dollars," Daniel Hass said.

(Xinhua News Agency June 25, 2007)