The recent strength of the shekel has generally been credited to a strong Israeli economy. However, market sources now claim that speculators are targeting the shekel, keeping it artificially high, with foreigners holding nearly $80 billion of the currency.

A massive sell-off of shekels could seriously destabilise the country’s economy and some, like Motorola Israel president Elisha Yanay, suspect that the speculators may have more than profit in mind.

“Speculators are playing with our currency, and I wouldn’t rule out the possibility that hostile elements may want to encourage destabilisation.”

Dr Ehud Kaufman, a former senior executive with Bank Hapoalim, says the shekels are held by major international hedge funds and “big investment houses like Merrill Lynch and Barclays”, but their intentions are no less potentially damaging.

He warns of a similar scenario to Thailand in 1999, when speculators brought down a strong economy.

“It is clear to everybody that the shekel’s value is inflated,” he said. “For now it is in the foreigners’ interests that it should strengthen further. They support their actions with predictions about further strengthening of the shekel. When some conclude the process is complete, they will purchase exchange rate hedges, make a last speculative push, and then sell. The panic will result in a huge sell-off.”

Bank of Israel (BOI) Governor Stanley Fischer has tried to reduce Israel’s vulnerability. In 2008 Israel’s central bank began buying $100 million a day in foreign currency. It was generally assumed that Mr Fischer was trying to help exporters by weakening the shekel.

In August, Mr Fischer doubled these monthly purchases to $4 billion and last week, on one day alone, the BOI bought over $800 million in foreign currency. Mr Fischer has now said that this policy is to counter speculators.

As a result, Israel’s foreign currency reserves have doubled from $28.5 billion in December 2007 to $56.4 billion at the end of August. So Mr Fischer could counter a massive sell-off of shekels with vast purchases.

But others, like Israel’s Accountant General Shuki Oren, insist that speculators are a healthy presence.

“If there were no speculators, there would not be a foreign currency market. Israel’s foreign currency market has grown dramatically. Speculators maintain the market and do good work.”

Before 2007, a pound bought more than NIS 8. The exchange rate fell as low as NIS 5.4 to the pound last year before bouncing back to above NIS 6 against sterling in recent months.