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 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.''
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.
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.
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.