The euro fell to near the lowest level in three months against the dollar on speculation European Central Bank President Jean-Claude Trichet will indicate policy makers plan to keep reducing interest rates. The euro also declined versus the yen after a European Union report reiterated the region’s economy shrank the most in at least 13 years last quarter. The yen dropped to a four-month low, approaching 100 to the dollar, after a government report showed Japanese companies slashed spending at the fastest pace in a decade. The British pound stayed lower against the dollar after the Bank of England cut its benchmark rate to 0.5 percent and said it will buy assets as part of so-called quantitative easing. “A possible dovish tone in the statement after the ECB decision is the major risk to the euro,” said Antje Praefcke, a currency strategist in Frankfurt at Commerzbank AG, Germany’s second-biggest lender. “They may suggest further rate cuts.” The euro declined to $1.2561 as of noon in London, from $1.2661 in New York yesterday. The currency traded at 124.41 yen from 125.52. The yen was little changed at 99.07 per dollar, from 99.15 yesterday. Praefcke said the euro may fall to $1.25 at the end of the quarter and to $1.12 by year-end. The European Central Bank will lower its 2 percent target lending rate by half a percentage point to the lowest level since the European currency was introduced in 1999, according to all 55 economists surveyed by Bloomberg News. Shrinking Economies ECB policy makers are cutting borrowing costs at a time when the world economy is shrinking and central banks around the world are reducing interest rates to near zero. Goldman Sachs Group Inc. revised its 2009 global economic-growth forecast today to minus 0.6 percent, from minus 0.2 percent. The 16-nation euro region’s gross domestic product contracted 1.5 percent in the last quarter from the previous three months, the European Union’s statistics office said today in Luxembourg. That was in line with the median forecast of 32 economists surveyed by Bloomberg. When the ECB last cut its main refinancing rate by half a percentage point, on Jan. 15, the euro weakened as much as 0.4 percent against the dollar and 1 percent against the yen. The central bank left the rate unchanged at its most recent policy review on Feb. 5. “Trichet’s remarks will be very important as he may say he’ll cut rates again in the future,” said Michiyoshi Kato, senior vice president of foreign-currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank by assets. “This would likely cause selling of the euro.” Bank of England The Bank of England’s nine-member panel, led by Governor Mervyn King, cut the bank rate by a half point today, in line with the median of 60 economist forecasts in a Bloomberg survey. The central bank will purchase 75 billion pounds of assets to revive the economy by issuing “central bank reserves,” it said. The pound fell to $1.4061, from $1.4194 yesterday. It dropped to 89.34 pence per euro, from 89.21 pence. The U.K. economy shrank 1.5 percent in the fourth quarter, the most since 1980, a government report showed Feb. 25. The central bank on Feb. 11 forecast it will contract at an annual 4 percent rate by the end of this quarter. China Investment Gains for the dollar may be tempered after Premier Wen Jiabao said today China will “significantly increase” investment to tackle the impact of the global economic slowdown, damping demand for the safety of the U.S. currency. China will more than double public spending this year to 908 billion yuan ($133 billion), Wen said. In his report to the National People’s Congress in Beijing, equivalent to a U.S. State of the Union speech, he also reiterated an 8 percent growth target for this year. “This shows that they are quite determined to make sure the economy continues to grow and is positive for risk-taking appetite,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This may be negative for the dollar and the yen as haven currencies.” The Dollar Index, which tracks the U.S. currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, was at 89.097, from 88.577 yesterday, when it reached 89.624, the highest level since April 2006. To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

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