The dollar rose from a seven-week low against the euro while the yen advanced as a drop in stocks reduced demand for higher-yielding assets. The euro, which rose the most against the dollar in almost two months on May 8, slid after its 14-day relative strength index approached 70, signaling a change in direction may be imminent. The Australian dollar fell from the strongest level versus the dollar and yen since October as HSBC Holdings Plc, Europe’s biggest bank, said 2009 will be a “tough” year. “We are seeing some consolidation after Friday’s move,” said Camilla Sutton, currency strategist at Scotia Capital Inc. in Toronto. “The general theme is still in place. Commodity currencies such as the Australian dollar should outperform, and the dollar and the yen really are the underperformers.” The dollar advanced 0.4 percent to $1.3582 per euro at 8:52 a.m. in New York, from $1.3634 at the end of last week. It earlier reached $1.3668, the weakest level since March 24. The euro fell 1.2 percent to 132.58 yen from 134.23 after touching 134.82, the highest level since April 7. The U.S. currency dropped 0.9 percent to 97.63 yen from 98.47. The euro’s 1.8 percent rally on May 8, following a better- than-forecast U.S. jobs report, was the strongest since March 18, when the Federal Reserve announced plans to buy up to $300 billion in Treasuries. Euro ‘Hesitation’ “We had quite a large move in the euro on Friday, and now we see a little bit of hesitation to take it higher,” said Paul Robson, a London-based currency strategist at Royal Bank of Scotland Group Plc. “We still see the dollar remaining under pressure in the next month.” The common European currency’s 14-day relative strength index was at 63.1 today, compared with 64.8 at the end of last week. Reports today showed industrial production in France and Italy in March decreased more than economists predicted in Bloomberg surveys. Industrial production in Italy contracted 4.6 percent from February, more than twice the median forecast. Output in France shrank 1.4 percent in March, compared with a prediction for a 0.5 percent drop. The Dollar Index, which the ICE uses to track the greenback against the currencies of six major U.S. trading partners, may slump a further 5.7 percent after dropping below the 200-day moving average on May 8, according to Forecast Pte in Singapore. ‘Bearish Signal’ “This is a very strong bearish signal,” said Pak Lai Ng, a technical analyst at Forecast. “It is a corrective move from the major uptrend that began since March 2008.” The index, which tracks the currency versus the yen, euro, pound, Swiss franc, Canadian dollar and Swedish krona, rose 0.3 percent to 82.76 today, compared with the 200-day moving average of 83.18. It dropped 1.7 percent on May 8. The yen gained 1.7 percent to 74.42 per Australian dollar after a 4.3 percent loss last week, the biggest since the week ended April 3. London-based HSBC said today in a statement that charges for impaired loans rose in all customer groups and regions during the first quarter. In the U.S., where HSBC reported complete first-quarter earnings, provisions rose to $3.95 billion, from $3.19 billion a year earlier. Japan’s currency fell 27 percent versus South Africa’s rand and 26 percent against the Australian dollar in the past three months as global equity markets rallied, increasing demand for using the Japanese currency to fund investments in higher- yielding assets. Benchmark interest rates in Japan are 0.1 percent, compared with 8.5 percent in South Africa and 3 percent in Australia. The Australian dollar dropped 0.9 percent to 76.18 cents, the first decline in seven days. It touched 77.14 earlier, the strongest level since Oct. 6.

Source