Economic and political uncertainties following the fighting in the North have broken the resistance of the shekel after weeks during which the local currency withstood the tensions of war. "During the conflict, investors and particularly foreigners saw an economy with strong economic data and a strong army," said Rafael Menasheof, currency trader at Finotec Trading Inc. "However, since the cease-fire, we still have a delicate security situation, the cost of the war on the economy is starting to emerge, while ministers and presidents are under police investigation." This picture, Menasheof said, "creates a sense of uncertainty in the political establishment and raises questions over budget discipline, which has started to worry in particular investors from the outside." Apart from the first days of the conflict in the North in mid-July when the shekel weakened slightly against the dollar, the local currency had gained significant strength to a support level of NIS 4.36 against the dollar at the end of the fighting. During the fighting, the shekel-dollar exchange rate also was affected by fluctuations in the dollar in international markets. Over the past week, the shekel gradually weakened to NIS 4.39 against the dollar. "It is not hard to list reasons for the weakening of the shekel in the past week," said Norbert Brinker, president and CEO of Gift Asset Management. "Investors are now seeking an answer to the uncertainties created by the aftermath of the war but it is not clear yet whether the shekel will weaken continuously as foreign investors might still be prepared to invest in Israel." US investment house Morgan Stanley told clients it believes that the shekel is 30 percent undervalued compared with the basket of currencies and 12.5% undervalued compared with the dollar. It believes, however, the shekel is unlikely to appreciate in the near-term because Israelis had a diversified investment portfolio, which included overseas assets, and because of global monetary policies and risks associated with geopolitical uncertainties. Morgan Stanley noted in its report on the "incredible shekel" that no one expected the currency to withstand the global financial earthquake and local security shock, but said the performance was not surprising, attributing the resilience to the prudent fiscal management and structural reforms that strengthened the Israeli economy and made financial markets more resistant to shocks. Meanwhile, Menasheof at Finotec and analysts at Leader Capital Markets predict that in the long-term the dollar will continue to strengthen against the shekel back to a pre-war range level of NIS 4.45 to NIS 4.50. "Expectation of positive economic data from the US such as increase in payrolls and lower unemployment are poised to strengthen the dollar in international markets," said Menasheof, who added that the rehabilitation work in the North involving an increase of products for construction, real estate and apartments priced in dollars also would contribute to the strengthening of the dollar.