“There is plenty of scope to be disappointed by the ECB statement,” said Paul Robson, a London-based currency strategist at Royal Bank of Scotland Group Plc. “The euro could head lower. Every time European officials have the opportunity to move forward, they drop the ball.” The currency may weaken to $1.15 in three months, Robson said.

The euro declined to $1.2558 as of 12:45 p.m. in London Thursday, from $1.2661 in New York Wednesday. The currency traded at 124.83 yen from 125.52. The yen was little changed at 99.32 per dollar, from 99.15 Wednesday, after trading as weak as 99.68 earlier.

Thursday’s rate reduction brings the ECB’s target rate to the lowest level since the euro was introduced in 1999. All 55 economists surveyed by Bloomberg News forecast the cut. Trichet was scheduled to hold a press conference in Frankfurt later Thursday to explain the decision.

Shrinking economies

ECB policy makers are reducing borrowing costs at a time when the world economy is shrinking and central banks around the world are cutting interest rates to near zero. Goldman Sachs Group Inc. Thursday revised its 2009 global economic-growth forecast 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 Thursday 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 percent on January 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 February 5.

“Trichet’s remarks will be very important as he may say he will 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, Thursday cut the bank rate by a half point to 0.5 percent, in line with the median of 60 economist forecasts in a Bloomberg survey. It will purchase 75 billion pounds of assets to revive the economy by issuing “central bank reserves,” it said.

“In these highly uncertain times, there are merits to stimulating the economy through a variety of different channels,” King wrote in a letter to Chancellor of the Exchequer Alistair Darling dated February 17 and published Thursday.

The pound fell to $1.4089, from $1.4194 Wednesday. It was little changed at 89.19 pence per euro, from 89.21 pence.

The UK economy shrank 1.5 percent in the fourth quarter, the most since 1980, a government report showed February 25. The central bank on February 11 forecast it would contract at an annual 4 percent rate by the end of this quarter.

Source: Bloomberg