The shekel weakened more than 2% before regaining slightly to trade 1.4% lower and the main indexes on Tel Aviv Stock Exchange edged slightly down as Prime Minister Benjamin Netanyahu's coalition appeared to delay the Judicial Selection Committee vote on Wednesday.
The judicial drive, announced in January only a week into Netanyahu's return to office, set off one of Israel's worst political crises in years, with critics at home and abroad dubbing it a threat to the very nature of Israel's democracy.
Advocates of the proposed overhaul say the Supreme Court is elitist, left-leaning and overreaching, and elected officials should have more power in picking the bench.
Western allies, including Washington, have urged Netanyahu to pursue broad consensus over reforms to the justice system.
Until now, talks with the opposition have yielded little, compounding uncertainty over the overhaul plan's future that has hit the economy and the shekel. The stakes are rising with two High Court justices retiring in the coming months.
In February, the shekel slid 1.9% against the dollar to a nearly three-year low, even as the finance minister said it would help the economy and promised to protect the country's central bank independence.