Forex Market: EUR/USD extends losses following Erkki Liikanen’s comments

The euro extended losses against the US dollar, following the comments of the ECB Governing Council Member Erkki Liikanen that the central bank is determined to contain any risks that the low inflation could pose on price stability and economic recovery in the currency bloc.

EUR/USD hit a session low at 1.3542 at 9:57 GMT, after which consolidation followed at 1.3544, losing 0.36% on a daily basis. Support was likely to be received at June 5th low, 1.3503, also the pairs weakest since February 2nd, while resistance was to be encountered at June 9th high, 1.3668.

The euro came under selling pressure after Erkki Liikanen, Member of the ECB Governing Council and Governor of the Bank of Finland commented today that the central bank is determined to deal with any risk for a prolonged period of low inflation, which would break the price stability and economic recovery in the euro area.

His comments came after last week the ECB took extraordinary measures to prevent rising threats of deflation or a general price decline in the currency bloc. The central bank cut its deposit rate to a negative 0.1% and became the first major bank in doing so. The annualized rate of inflation fell to 0.5% in May, matching Marchs reading, which was the weakest since October 2009. The rate remained well below the central banks target for inflation of just under 2%, ensuring price stability, which prompted the ECB not only to cut the deposit rate to negative 0.1%, but also to lower its benchmark interest rate to 0.15% from 0.25%. The bank also said that it will offer hundreds of billions of euros in targeted, cheap loans to banks at relatively long maturities by the end of 2016, a commitment, which according to Mr Liikanen underlines its determination to adjust monetary policy in line with the outlook for inflation.

“We are conscious about the risks of a prolonged period of low inflation to price stability and recovery,” Mr. Liikanen said in a news conference, cited by the Wall Street Journal. He also added that last weeks ECB decision showed its “determination and capacity to act.”

Elsewhere, GBP/USD hit a session low at 1.6781 at 8:20, after which the pair consolidated at 1.6798 0.03% for the day. Support was likely to be received at June 5th low, 1.6723, while resistance was to be encountered at June 9th high, 1.6832.