More Trump-Inspired Confusion and A Slightly Softer Dollar
August 19, 2026
President Trump claims the Strait of Hormuz is cleared of mines and back to normal. Other reports suggest that little shipping traffic is passing through that crucial channel.
A U.S.-threatened 50% tariff on many Canadian goods that was to go into effect today was paused last night at least for 3 days as President Trump claimed a tentative deal that needs to be finalized. We’ll just have to see how that works out.
European Central Bank Governor Lagarde in a speech warned that America’s retreat from the global order is eroding European competitiveness and called for greater European integration to meet challenges like that posed by AI.
President Trump’s confrontational remarks concerning the long-standing U.S. relationship with South Korea continued to trigger shock waves in Asian financial markets, where equities closed Wednesday with losses of 5.8% in South Korea, 3.2% in Japan, 2.4% in China, and 1.5% in Taiwan. The move out of risky assets pulled down 10-year sovereign debt yields by five basis points in Japan and four basis points in Australia. The dollar plopped 1.5% against the South Korean won to its weakest level (1,388) in nearly a year.
The dollar elsewhere has lost 0.3% against the yen, Swissy and Indonesian rupiah, and the DXY weighted dollar index is 0.2% softer. Investors continued to be rattled by pricey energy costs. West Texas Intermediate oil rose by a further 0.7% overnight to $$85.51 per barrel. Prices for gold, silver and Bitcoin are 0.4-0.7% weaker. In contrast to the wobbles of Asian stock markets this Wednesday, share prices in Europe and U.S. futures have shown only minor movement.
Officials at Bank Indonesia left their 7-day repo rate unchanged at 5.75%, aligning with the market’s majority consensus. There had been some speculation about a further 25-bp hike to follow up on a percentage point of tightening in May and June and amid some uncertainty injected by last month’s abrupt resignation of the bank’s governor. A released statement asserts that 5.75% is consistent with the intent to fortify a more stable exchange rate amid “heightened global volatility caused by the ongoing war in the Middle East” and to maintain inflation with the target of 1.5-3.5% this year and next. The latest 12-month CPI rise was 2.88%. Sustaining economic growth is another objective. The statement does not rule out the possibility of a future rate hike if deemed necessary.
In contrast to Indonesia’s central bank decision, officials at the Central Bank of Iceland lifted their 7-day deposit rate by 25 basis points to 8.0%. This marks the third such tightening since March. Today’s 4-1 vote in favor of a higher interest rate comes amid elevated inflation caused by the world energy price shock. Icelandic CPI inflation was at 5.3% in July and has been above 5.1% since January. Inflation faces near-term upside risk, but the baseline forecast anticipates a relatively quick drop in 2027. A statement nonetheless cautions,
Inflation expectations are still too high, as is underlying inflation. Although inflation is expected to decline rapidly in 2027, significant uncertainty remains, especially as regards developments in the global economy and the domestic labor market.
Among released data around the world today were several price figures.
- Australia’s wage price index went up 0.8% last quarter and matched the first quarter’s year-on-year increase of 3.2%.
- British consumer price inflation rose to a 4-month high of 2.9% in July but was aligned with market expectations and accompanied by a unchanged core inflation pace of 2.6%. Energy jumped 9.8% on year, up from June’s 5.7%.
- British producer output price inflation receded to a 4-month low of 3.1%, and producer input price inflation dropped to a 5-month low of 4.9%. They had peaked earlier this year at 4.1% and 9.2%, respectively.
- July consumer price inflation in the euro area was left unrevisd from the preliminary estimate of 2.9%, a 2-month high. Core CPI of 2.5% was up from 2.4% in June and included higher readings for services and non-energy industrial goods.
- New Zealand producer output prices leaped 1.6% last quarter, twice as much as expected, and this increased the year-on-year increase by a full percentage point to 3.2%. Producer input price inflation of 4.1% was well above 1.8% in the first quarter.
- South African CPI inflation in July of 4.3% was at a 3-month low and down from 5.0% in June.
U.S. mortgage applications fell 0.4% last week, marking their third decline in the past four weeks. This and other recent soft U.S. data have persuaded money market participants to scale back odds of a September rate hike by the Fed to no more than 1 in 3. Data out Tuesday showed an unexpected 0.4% monthly drop in import prices last month following June’s 0.3% decrease. Export prices fell 1.3% in July, halving their year-on-year increase to 8.2%. Pending home sales sank 2.3% in July following a 4.8% drop in June, and housing starts retreated 12.4%.
Japanese core private machinery orders in June roared back 9.7%, but their second-quarter average increase was just 0.2%.
Euroland recorded the largest unadjusted current account surplus in a year and a half, totaling EUR 46.9 billion in June, but the second quarter surplus of EUR 57.5 billion was almost identical to the prior quarter’s EUR 57.0 billion. The seasonally adjusted current account surplus of EUR 35.1 billion was more than 50% wider than predicted. As a percent of GDP, the surplus of EUR 283 billion over the past twelve reported months equaled 1.7% of GDP.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Bank Indonesia, British and Euroland CPI, Central Bank of Iceland
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