Euro Loses Ground as ECB's Liikanen Refuses to Call 1% Interest Rate the Floor

The euro lost ground against many major currencies as European Central Bank (ECB) Governing Council member Erkki Liikanen emphasized that “fixing some lower bound” is not part of ECB monetary policy. Liikanen went on to say that after cutting interest rates to an all-time low of 1 percent on May 7, the ECB “did not decide that the new level of the interest rate was the lowest level whatever the future circumstances may be.” Adding to this euro-bearish commentary, the German Federal Statistics Office said that the EU-harmonized German consumer price index (CPI) unexpectedly fell 0.2 percent during the month of May, according to preliminary readings, which dragged the year-over-year change down to a record low of -0.1 percent. The ECB has stated in the past that they expected CPI to fall negative in the middle of the year for a few months, but that the Euro-zone is not at risk of deflation. However, with these negative results starting to come to fruition, ECB policy officials may find themselves battling deflation rumors.