By Lukanyo Mnyanda Nov. 6 (Bloomberg) -- The euro fell against the dollar and the yen after European Central Bank President Jean-Claude Trichet said economic ``momentum'' weakened significantly. The European single currency dropped for a second day as the ECB reduced its main interest rate by 50 basis points to 3.25 percent today, in line with a Bloomberg survey of economists. The Bank of England unexpectedly cut its key rate by 1.5 percentage points to 3 percent. Switzerland also cut borrowing costs. ``The market is disappointed with the ECB after the Bank of England's bigger-than-expected cut earlier today,'' said Daragh Maher, deputy head of global currency strategy in London at Calyon, the investment-banking arm of France's Credit Agricole SA. ``The ECB looks like it's behind the curve and the euro is being marked down on the back of that.'' The euro fell to $1.2819 as of 1:40 p.m. in London, from $1.2954 yesterday. The single currency has weakened 20 percent against the dollar since climbing to a record $1.6038 on July 15. It was at 125.59 yen, from 126.89 and the pound strengthened to 80.57 pence per euro, from 81.42. The euro may end the year at $1.30, Maher said. ``The intensification and broadening of the financial turmoil is likely to dampen global and euro-area demand for a rather protracted period of time,'' Trichet said today at a press conference in Frankfurt following the ECB meeting. ``In such an environment, price, cost and wage pressures should also moderate.'' The ECB lowered the benchmark rate to 3.75 percent on Oct. 8, joining the Federal Reserve, the Bank of England, the Bank of Canada and the Swiss National Bank in coordinated reductions. Benchmark rates are 1 percent in the U.S. and 0.3 percent in Japan. Orders Plunge A government report today showed manufacturing orders in Germany, the euro region's biggest economy, dropped by a record 8 percent in September, led by a slump in foreign demand for factory machinery. The European Commission on Nov. 3 said the region may be in a recession and said the economy will stagnate next year. The euro-region economy contracted 0.3 percent in the three months through September and may shrink by the same amount in the fourth quarter, according to a Bloomberg News survey. A 100 basis-point reduction by the ECB would have provided a chance to buy the euro, according to Citigroup Inc., the world's fourth-largest currency trader. ``The Bank of England's move triggered expectations the ECB would also be aggressive and when the cut came, it was seen as not being enough,'' said Audrey Childe-Freeman, a senior currency analyst at Brown Brothers Harriman & Co. in London. ``If Trichet keeps the door open to more cuts, that may limit the damage to the euro.'' Economic Reports Gains in the dollar may be limited before economic data tomorrow. U.S. payrolls fell by 200,000 last month and the unemployment rate rose to a five-year high of 6.3 percent, according to the median forecast of 75 economists surveyed by Bloomberg. The U.S. economy contracted 0.3 percent in the third quarter, the biggest decline since 2001. U.S. stocks dropped yesterday on concern the world's largest economy will deteriorate even as President-elect Barack Obama plans a $175 billion ``middle-class rescue plan'' to spur growth. The Standard & Poor's 500 Index slumped 5.3 percent, the biggest drop following a presidential election, after data showed service industries contracted the most on record in October. Stocks in Europe also declined today, with the Dow Jones Stoxx 600 Index losing 3.9 percent. `Perfect Storm' The yen and the dollar in October posted their largest monthly gains versus the euro since the 15-nation currency's debut in 1999 as signs of a global recession led investors to seek safety in the Japanese and U.S. currencies. ``You had a perfect storm in October with bad earnings, fund managers needing to sell assets to meet redemptions, and people selling out of commodities and into dollars,'' said Amy Auster, head of foreign exchange and international economics research at Australia & New Zealand Banking Group Ltd. in Melbourne. ``A lot of those reasons to buy dollars have now come to an end.'' Futures on the Chicago Board of Trade showed a 96 percent chance that the Fed will halve its target rate for overnight lending between banks at its Dec. 16 policy meeting, compared with zero percent odds a month ago. To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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