Israel Strategy: Adjusting to a hands-on BoI: We moderate our USDILS targets but still see appreciation scope; hold 1y1y ILS OIS receivers

Research evidence excerpt

Israel Strategy: Adjusting to a hands-on BoI: We moderate our USDILS targets but still see appreciation scope; hold 1y1y ILS OIS receivers

Shaun Daly AC (44-20) 7134-0776 Anezka Christovova (44-20) 7742-2630 Global Markets Strategy J P M O R G A N

shaun.daly@jpmorgan.com anezka.christovova@jpmorgan.com Israel Strategy: Adjusting to a

J.P. Morgan Securities plc hands-on BoI

Michael Harrison AC (44-20) 7134 5720 23 July 2026

michael.p.harrison@jpmorgan.com

We moderate our USDILS targets, given interest rate differentials have turned

more punitive than we expected. We revise our year-end USDILS forecast to 2.95

(from 2.80), seeing moderate ILS appreciation scope from current levels. Our continued

ILS bullish outlook hinges on our view that an AI/equity recovery is likely, with AI still

structurally supportive for Israel’s BoP and productivity gains. However, the negative

ILS-USD carry differential of -100bp based on 3-month FX implied yields is now

sufficiently punitive to constrain FX gains and local institutional portfolio rebalancing

to ILS (Figure 1FXhasrecorelatedwithratespreads;our10bpthresholdforreviewingILSbulcasehasbenreached). We retain our OTM 17-Aug-26 EURILS 1x1 put spread (3.35/3.22,

spot ref: 3.4040) for optionality. We do not introduce new bullish FX trades at this

juncture, given unclear timing for AI equity recovery.

Our bullish ILS view accounted for a degree of BoI dovishness and FX intervention

risks, but global equity underperformance has been an unexpected setback. Three

factors have turned against ILS in recent weeks, which we address in turn below:

1) A more dovish than expected BoI. This was in line with our risk understanding, and

we have been positioned in 1y1y receivers since 16 April. That said, oil price declines