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Shekel Weakens to 3-Week Low as Dollar Rallies on Debt Purchases

The shekel weakened to the lowest level in three weeks as the dollar strengthened on bets the U.S. Federal Reserve may end its monthly bond purchases this year, boosting demand for the greenback.

The shekel weakened for a third day, dropping 0.4 percent to 3.7871 per dollar as of 4:53 p.m. in Tel Aviv. The currency earlier slipped as much as 0.6 percent to 3.7950, the weakest level since Dec. 17. The slide in the shekel tracks a rise in the Dollar Index for a fourth day before Richmond Federal Reserve President Jeffrey Lacker speaks tomorrow in Columbia, South Carolina. Minutes released last week of the U.S. central bank’s latest meeting showed policy makers may curtail monetary stimulus this year.

“It’s the Fed effect,” said Moshe Nir, a trader at Mercantile Discount Bank Ltd. in Tel Aviv. “The shekel is having a steady decline against the dollar after the Fed announced it may slow debt-purchases. Israel naturally gets strongly impacted by these trends in the dollar.”

After its December meeting, the Fed announced Treasury purchases of $45 billion a month in addition to $40 billion a month of mortgage-debt purchases begun in September. “Several” members of the policy-setting Federal Open Market Committee said it would “probably be appropriate to slow or stop purchases well before the end of 2013,” according to minutes of their Dec. 11-12 meeting released last week.

Bonds fell for a second day, sending the yield on the 5.5 percent Mimshal Shiklit notes due in January 2022 seven basis points higher, or 0.7 percentage point, to 3.84 percent, the highest level since Dec. 5. The yield is gaining after an eight basis-point advance in the 10-year Treasury note on Jan. 3 also after Fed policy makers said they will probably end monthly bond purchases in 2013.

The U.S., along with the European Union, is Israel’s largest trading partner.

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