The euro fell against the dollar and the yen after European Central Bank President Mario Draghi and his colleagues unexpectedly lowered the benchmark interest rate to 1.25 percent. The 17-nation currency approached a three-week low versus the greenback after Draghi said he saw “intensified downside risks” to the region’s economy. The euro rose earlier on speculation Greek Prime Minister George Papandreou will withdraw his proposal for a referendum on the nation’s bailout, easing concern voters will reject the plan. “The surprise cut will be negative for the euro, and we expect the rate to fall further to 1 percent in coming months,” Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ Ltd. in London, said before the decision. “This will ease demand for the euro among reserve managers because of the dwindling rate spreads over the dollar.” The euro dropped 0.2 percent to $1.3716 at 1:47 p.m. London time, after earlier rising as much as 0.6 percent. It fell to $1.3609 on Nov. 1, the weakest level since Oct. 12. The shared currency declined 0.2 percent to 107.03 yen, after gaining as much as 0.6 percent before the ECB announcement. “The ongoing tensions in financial markets are likely to dampen the pace of economic growth in the euro area in the second half and beyond’ Draghi said at a press conference in Frankfurt. Aid Suspended Led by Germany and France, European leaders yesterday cut off financial aid for Greece until the planned referendum in December determines whether it deserves a fresh batch of loans needed to stave off default. “The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no?” German Chancellor Angela Merkel told reporters after crisis talks hours before the G-20 summit in Cannes, France. French President Nicolas Sarkozy said Papandreou’s government won’t get a “single cent” of assistance if voters reject the plan. Greek Finance Minister Evangelos Venizelos said the bailout should be implemented without delay and his nation’s membership in the euro region cannot depend on a referendum. More than seven in 10 voters said they favored Greece remaining in the euro system, according to a poll last week of 1,009 people published in To Vima newspaper. “Markets rallied in the late London morning on speculation that Papandreou is losing further support in the government for the referendum which would cause him to lose the elections on Friday or even resign,” Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co. in New York, wrote in a note to clients. “A ‘no’ vote of confidence would likely dash chances of a December referendum, even thought it would leave Greece temporarily without a government.” To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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