USDILS

18 August 2026, 12:52 UTC Chief Investment Office GWM Investment Research

USDILS: Tech lifts shekel CIO View: USDILS Tilmann Kolb, Analyst, UBS AG Dubai Branch Pietro Santin, CIO Emerging Market Strategist, UBS Switzerland AG

• The Israeli shekel recovered some of its losses sustained over the prior CIO Forecast- USDILS Negative long term trend two months, supported by a sentiment shift in the global tech trade. In the near term, additional rapid ILS strength could lead to renewed 18 Aug 26 2.99 PPP*: NA action by the Bank of Israel to cap the currency’s gains. Dec 26 2.95 TEEER*: Mar 27 • Our end-of-quarter USDILS forecasts are 2.95, 2.90, and 2.85 for 2.90 4Q26 through 2Q27, and we introduce the 3Q27 forecast at 2.85, Jun 27 2.85 keeping our medium- to longer-term bias toward a stronger shekel Sep 27 2.85 given Israel’s solid fundamentals and exposure to the tech ecosystem. *Purchasing power parity, UBS calculation • We see a bigger correction in the tech space as the key risk for the shekel, while the degree of BoI dovishness, security dynamics, and Fundamental influence domestic politics ahead of upcoming elections should be monitored Curr GDP F CPI F CB target 10Y rate (1) Yield (1) as well. 2026 USD USD 2.1 2.1 2026 ILS NA NA NA NA 2027 ILS NA NA

Our view and risks Another shift in sentiment toward the global tech trade and rising US Figure 1 - USDILS equity markets have lent support to the shekel recently, after it struggled Exchange rate (incl. forward rates), CIO forecast, and in June and July. We think the Bank of Israel (BoI) will remain averse volatility range to rapid further ILS strength given the impact on inflation and export businesses, potentially pushing back via dovish monetary policy or renewed FX intervention. This should make a quick, sustained drop of USDILS toward 2.80 unlikely. Over the medium to longer term, however, we think the shekel will benefit from a positive outlook for (US) stock markets, Israel’s institutional investors’ hedging activity, and the Federal Reserve turning less hawkish. Key downside risks include a major correction in tech stocks, an even bigger monetary policy divergence between Israel and the US, and prolonged, resource-intensive military operations.

Key drivers Global backdrop and hedging behavior: US labor market and inflation Source: Bloomberg, UBS, 18 August 2026 data recently painted a less urgent picture for rate hikes by the Federal Reserve. Market pricing for hikes this year fell from 44bps in late July to 23bps currently, while we expect the Fed to remain on hold; no tightening by the Fed would be positive for the shekel. The availability and prices of hydrocarbons and their derivatives remain a key risk for this outlook, however, as shipping through the Strait of Hormuz remains disrupted and the US-Iran standoff could lead to renewed hostilities. Meanwhile, a strong second quarter earnings season has reinvigorated the tech/AI trade. We continue to see long-term upside in the structural AI theme, even though intermittent bouts of weakness as investors focus on monetization are likely. The shekel benefits from US stock market and tech rallies, as Israeli institutional investors hold significant exposure to US equities and tend to sell US dollars and buy shekels for the currency-hedged portions whenever US stocks rise. Healthy tech demand also boosts prospects for capital

This report has been prepared by UBS AG Dubai Branch, UBS Switzerland AG. Please see important disclaimers and disclosures that begin on page 3.

inflows into Israel’s vibrant tech sector and supports its entrepreneurs, tech Figure 2 - Hedge ratios of institutional workers, and exports. But the link with tech and stock market performance investors are still at lower end of also represents a key risk for the shekel, as seen in June and July when the historical levels shekel struggled as the tech rally wavered. Proxy for institutional investors hedge ratios (in % of total FX exposure) Security risks and risk premium: According to our estimates, the risk premium in USDILS had largely been priced out before this year’s war with Iran and has further decreased in the aftermath. Israel has faced repeated…