Stronger Than Expected US Economic News Tuesday Pauses the Euro Rally

03/24/2015 5:39 pm EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

Strong economic news from the United States sent the euro into retreat against the US dollar on Tuesday, but MoneyShow’s Jim Jubak points out that this pause to the euro rally does not necessarily mean the end of it.

Is today the end of the euro rally?

For the day, at least, strong economic news from the United States has sent the euro into retreat against the US dollar.

Today, March 24, the euro had traded as high as $1.1029, up from yesterday’s close at $1.0946. But that was before this morning’s reports showing a stronger than expected US economy. The euro finished the afternoon at $1.0922.

New home sales for February climbed to a blowout annual rate of 539,000 against expectations for 465,000 sales in the month. January had seen a (revised) 500,000 in new home sales.

Continuing the trend, the Institute for Supply Management’s Purchasing Managers Index for the manufacturing sector came in at 55.3 up from 55.1. Anything above 50 shows expansion.

The stronger than expected data once against pushed financial markets toward a belief that the Federal Reserve will raise interest rates for the first time sooner rather than later. Expectations for higher interest rates have been key in pushing up the dollar against the euro and against the currencies of most US trading partners.

The relatively subdued reaction—a pause to the euro rally rather than a substantial correction in recent gains—indicates, to me, that the market found the Federal Reserve’s recent policy statement a convincing case for September rather than June and that it will take more than just two pieces of data to upset that conviction.

At the same time, though, the reaction does suggest a reluctance to push the euro rally much further without supportive evidence.

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