Sept. 8 (Bloomberg) -- The euro fell the most in a month versus the dollar as European Central Bank President Jean-Claude Trichet said "downside risks" to the region's economy have intensified, damping the outlook for interest-rate increases. The 17-nation euro extended declines versus the dollar after Trichet said inflation risks are balanced, and no longer to the upside. It dropped earlier as the ECB kept its main interest rate on hold at 1.5 percent, as predicted by all 57 economists in a Bloomberg survey. The dollar strengthened before President Barack Obama unveils proposals to spur job growth and the U.S. economy. The pound rose against most of its peers as the Bank of England resisted calls to increase its asset- purchase program. "The statement has a dovish tone, they've revised down their forecasts for growth and inflation by more than the market had expected," said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. "The market will just start to embrace the idea that the ECB could be cutting rates by the end of the year." The euro slipped 0.8 percent to $1.3982 at 1:59 p.m. in London. It reached $1.3972 on Sept. 6, the least since July 13. The euro weakened 0.7 percent to 108.19 yen. The greenback was little changed at 77.31 yen. The pound strengthened 0.2 percent to $1.6015 and 0.9 percent to 87.34 pence per euro. The central bank now forecasts inflation to average between 2.5 percent and 2.7 percent this year and between 1.2 percent and 2.2 percent in 2012, Trichet said. Borrowing Cost Bets German 10-year yields dropped to a record low 1.823 percent. Euribor futures rose, pushing the implied yield on the contract expiring in March down seven basis points to 1.03 percent, signaling that investors increased wagers on lower borrowing costs. Traders are betting the ECB will cut rates by 26 basis points over the next 12 months, a Credit Suisse Group AG index based on swaps shows. The Bank of England maintained its quantitative-easing program at 200 billion pounds ($320 billion) today and kept its main interest rate at a record low 0.5 percent. The pound earlier dropped toward a nine-week low against the dollar after the U.K.'s Institute of Directors called on the Bank of England to add 50 billion pounds ($79.8 billion) to a bond-purchase program it should resume immediately. Obama Speech The greenback snapped yesterday's losses versus the yen and the euro on prospects the President's plans will boost growth. Obama, facing re-election in 2012, will address a joint session of Congress today on proposals to speed job creation that may inject more than $300 billion into the economy next year. Almost half the stimulus may come from tax cuts, including an extension of a 2 percentage-point reduction in the payroll tax paid by workers due to expire Dec. 31 and a new decrease in the portion of the tax paid by employers. "To announce a broad program to fight unemployment is always something that might be perceived as dollar-positive by the market," said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. San Francisco Fed President John C. Williams yesterday cut his growth forecast for the rest of 2011 and said the economy probably won't be able to expand enough to bring down a 9.1 percent jobless rate soon. "The real threat is an economy that is at risk of stalling and the prospect of many years of very high unemployment, with potentially long-run negative consequences," Williams said in a speech in Seattle. While the Fed could take new steps to ease conditions, "these 'treatments' won't make our economic problems go away and their costs and benefits must be carefully balanced." Fiscal Stimulus The U.S. economy grew at a 1 percent annual rate in the second quarter, and unemployment remained stuck at 9.1 percent in August as job growth stagnated. Confidence among consumers plunged last month to the lowest level in more than two years. "You're likely to see the Fed carry along as they have been," said Thomas Averill, a director in Sydney at Rochford Capital, a currency and interest-rate risk management company. "The real baton for stimulus has now been passed to the fiscal side of the equation as opposed to the monetary policy side." Switzerland's currency weakened against all of 16 major peers tracked by Bloomberg, sliding most versus the New Zealand dollar and the pound. The franc fell by a record against the euro on Sept. 6 after the Swiss National Bank set a franc ceiling -- the first time such a limit was set since 1978 -- saying it would use "unlimited" quantities of cash to cap the increase. 'Stand Their Line' "The general consensus is that the SNB is ready to stand pat and it wouldn't be smart to try and take them on at the moment," said Peter Rosenstreich, chief currency analyst at Swissquote Bank SA in Geneva. "They're going to stand their line and hold the ground." The central bank may act to weaken the currency below the ceiling as it attempts to support growth in the export-led Swiss economy, he said. "The move from 1.10 to 1.20 won't significantly relieve the stress that's on exporters, so it's not like it's going to change the economic environment drastically," Rosenstreich said. "It needs to be higher." --With assistance from Masaki Kondo and Kristine Aquino in Singapore. Editors: Matthew Brown, Nicholas Reynolds

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