The shekel continued its weakening streak on Wednesday, as renewed conflict with Hamas added pressure fueled by weak economic figures from the second quarter.

The shekel, which had previously been on a strengthening streak, recovered about half the ground from its May 2013 peak of 3.72 to the dollar, closing at 3.53 to the dollar on Wednesday. Just last week, the strength of the shekel pushed it to 3.4.

“Its main trigger is was disappointing growth figures released earlier this week,” an analysis by trading company FXCM said.

“The resumption of fighting between Israel and Hamas [Tuesday] evening and concern of a renewed escalation are expected to weigh further on the shekel.”

In some ways, the shekel reflected a broader global trend of the dollar, heretofore weak, picking up strength. Bolstered by good housing data and expectations that the Federal Reserve could lower its interest rate, the greenback reached a nine-month high against the euro, FXCM noted.

“There’s a global trend here toward a stronger dollar, and we should calm down,” Harel Insurance Investments and Financial Services chief economist Ofer Klein told Globes.

“You can’t talk about a collapse of the shekel; it’s a good period worldwide for the dollar.

The dollar’s strengthening against the shekel is not exceptional and is even more moderate than its advance against the real. We’re part of a global trend.”

But local conditions are having a pronounced influence as well.

“The budget data does not look good, and the tourism data does not look great, though it’s not as important as it once was, so it could be an appreciation that this might be chronic,” said Asher Blass, former chief economist of the Bank of Israel and CEO of ERCG.

The war is expected to cost billions in defense, damages and aid to businesses, not to mention lost revenue from struggling businesses that result from the operation.

Finance Minister Yair Lapid has vowed not to raise taxes and insists on pushing through a costly housing benefit (the zero-percent VAT bill). He has already said he will raise the deficit for 2015 from 2.5% to 3%, but without major cuts he will have trouble hitting even that target.

Another factor affecting the shekel is the feeling that capital markets are overvalued, according to Eyal Horowitz, chairman and CEO of Baker Tilly Israel.

“The market is going up because there are no alternatives,” he said. “People are beginning to think it’s overvalued, so they’re looking for other investments, and one of them is foreign exchange.”

But whether the change in the shekel is cause for alarm is another story.

“It’s probably good for exporters,” Blass said.

For months, exporter interest groups have been calling for tough intervention to weaken the shekel, which makes their goods more competitive on world markets.

A weaker shekel might help boost exports, which would help economic growth.

“The question is, if there’s too much weakening, will it cause problems on the inflation front,” Blass said. “But if demand is weak, then there might not be an inflationary effect.”

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