By Lukanyo Mnyanda Nov. 6 (Bloomberg) -- The euro fell against the dollar, the yen and the pound after European Central Bank President Jean- Claude Trichet said the economy ``weakened significantly'' and the International Monetary Fund cut growth forecasts for the region. The European single currency slid the most this week versus the dollar 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, and Trichet said more cuts may follow. The Bank of England unexpectedly lowered its key rate by 150 basis 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 declined to $1.2813 as of 10:45 a.m. in New York, 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 fell to 125.55 yen, from 126.89, and to 80.55 British pence, from 81.42 pence. 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 after the ECB meeting. ``In such an environment, price, cost and wage pressures should also moderate.'' Bigger Cut Discussed Trichet said the ECB's rate-setting Governing Council discussed a 75 basis-point reduction. Economists predict the ECB will continue to cut borrowing costs at the most aggressive pace in its 10-year history, taking its key rate to 2.5 percent by April as growth falters. All Group of Seven economies except Canada will contract next year, the IMF said today in an update to its World Economic Outlook report. China's economy will also shrink, the IMF said. 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 the economy will stagnate next year. `Behind the Curve' ``The ECB is seen to be further behind the curve and not really reactive enough,'' said Henrik Gullberg, a currency strategist in London at Deutsche Bank AG, the world's biggest foreign-exchange trader. ``It's just postponing the inevitable. The trend will continue to be negative for the euro.'' Inflation slowed to 3.2 percent in October after reaching a 16-year high of 4 percent in July. The ECB aims to keep the rate below 2 percent. Oil prices have more than halved from a peak of $147 a barrel and inflation expectations have stabilized. 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. The Bank of England, led by Governor Mervyn King, reduced its key rate by the most in 16 years as the seizure in credit markets left Britain on the edge of its first recession since 1991. Signs the economy is faltering prompted a 50 billion-pound ($80 billion) bank rescue package from the government. The nation's main rate hasn't been lower since 1955. `Shock and Awe' ``The Bank of England's 'shock and awe' approach to cutting interest rates today is justified by conditions in the economy and financial markets,'' Sam Hill, a fixed-income fund manager at Threadneedle Asset Management Ltd. in London, wrote in a report. Manufacturing is in its longest contraction since 1980, while U.K. house prices fell an annual 14.9 percent in October, the most in at least 25 years, according to HBOS Plc, the nation's largest home-loan provider. ``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. The ECB keeping the door open to more cuts ``may limit the damage to the euro.'' `Perfect Storm' Gains by 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 a second day amid 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 fell 2.4 percent, after a 5.3 percent slump yesterday, the biggest drop following a presidential election. Stocks in Europe also declined, with the Dow Jones Stoxx 600 Index losing 5.4 percent. 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 show 71 percent odds 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. The rest predict a cut to 0.25 percent. To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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