Such conditions demanded a response – and on July 26 ECB President Draghi appeared to deliver – noting that the ECB was prepared to act to counter the impact of yields on monetary transmission. When asked what action would be taken, Draghi simply responded with ‘believe me, it will be enough’. According to Strategy Analyst Geoffrey Yu at UBS, “Expectations are rising that the SMP will be deployed in force, but we would wait for the August ECB meeting for final confirmation.”
In addition, there was no let up for the SNB in July as Eurozone concerns continued to force safe haven flows into non-Eurozone AAAs. With Germany’s outlook downgrade pressure only intensified on the franc. “Sight deposit figures suggest another CHF35B or so of intervention was conducted. The Q2 reserve allocations release also pointed to less aggressive diversification of the euros bought, perhaps to avoid further downside pressure on the currency in an already-difficult environment.” Yu adds.