The global capital markets are calmer today. This is not preventing the MSCI Emerging Market Index from extending its drop into the seventh consecutive session, but there has been a respite in the sell-off of emerging market currencies, where the Mexican peso, South African rand, Turkish lira, and Indonesian rupiah are modest, modest gains. At the same time, the Philippine peso, Korean won, and Indian rupee continued to weaken.

Against the major currencies, the greenback is narrowly mixed. The Swedish krona is the weakest, off about 0.45% (~SEK9.0960). The Riksbank kept rates steady as expected and continued to signal a rate hike either late this year or early next year. However, the sub-text was dovish as the central bank saw excessive low inflation as a risk even though the underlying inflation (CPIF) have been above the 2% target for three months.

Although the gains in euro and sterling modest, their resilience in the face of negative developments is noteworthy. We quickly dismissed yesterday’s report of a shift in UK and German Brexit negotiating tactics but pulling back a cent on the denial, sterling remains resilient. It is the strongest of the majors today, establishing a foothold above $1.29 in early European activity today, after closing above the previous session’s high.

The euro set a new high for the week in Asia earlier today near $1.1660. It subsequently was sold off to $1.1615 before rebounding.  There is a 1.6 bln euro option struck at $1.16 that will be cut today. That it remains firm is impressive given the disappointing news from Germany. Factory orders, which had been expected to rebound after a 4% drop in June, fell again (0.9%). German factory orders have fallen every month this year but May. Survey data had given hope that a stronger recovery would be after the soft patch at the start of the year. 

The weakness may reflect the changing trade climate. Export orders were off 3.4%, and non-EMU orders were down 4%. Roughly two-thirds of the decline is concentrated in autos and auto parts. Some reports link this holding back in the anticipation of lower auto tariffs in China. The weakness in factory orders poses a downside risk for the industrial production figures due out tomorrow.