DISAPPOINTMENT with the scale of Thursday's interest rate cut in Germany sparked a US dollar sell-off at the end of the week as market participants pared long dollar positions.
The 50 basis points reduction in Germany's official discount rate had been widely anticipated but the fact that the Bundesbank failed to reduce the Lombard rate, German bank's main reference rate, dashed expectations that Germany monetary policy will ease more aggressively.
The US dollar detour should be short lived, however.
Underlying sentiment is still positive because of the relative position of the American and German economies.
With the first leg of the French general election over, market attention in the coming week is likely to switch focus to the European currencies.
The French franc came under renewed pressure last week with unconfirmed reports of intervention from the Bank of France ahead of the elections.
