FOREX-Dollar heads for big weekly loss, political tensions briefly boost yen

* Dollar on course for loss of 1% this week after Fed
* Yen hits five-month high as Iran-U.S. tensions flare
* Euro supported by better-than-expected business surveys
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Adds new quote, details, updates prices)
By Tommy Wilkes
LONDON, June 21 (Reuters) - The dollar was headed for a big
weekly loss on Friday and the euro a solid gain after a dovish
shift by the Federal Reserve, and investors also briefly pushed
the yen to a new five-month high amid rising tensions between
the United States and Iran.
In joining the European Central Bank by opening the door to
interest rate cuts and more stimulus to counter an economic
slowdown, the Fed sent the dollar to its biggest two-day loss of
2019.
Forex markets were much quieter on Friday, however, as
traders took stock.
The focus now shifts to whether the United States and China
can resolve their trade row at a summit in Japan next week of
leaders from the Group of 20 leading world economies.
Presidents Xi Jinping and Donald Trump are due to meet on
the sidelines of the G20 next weekend, but analysts say chances
of a decisive breakthrough are low. An escalating dispute between the United States and Iran
after the downing of an unmanned U.S. surveillance drone also
supported buying of the safe-haven yen, which briefly touched a
five-month high. "The yen is continuing to benefit from the dovish shift in
Fed and ECB policy alongside other low-yielding currencies such
as the Swiss franc," said MUFG analysts in a note.
The yen rose as high as 107.04 yen per dollar JPY=EBS
before falling to trade at 107.52, down 0.2% on the day.
Money markets are pricing in three Fed rate cuts before
year-end, starting with the next meeting in July, and tipping as
many as five cuts through mid-2020. FEDWATCH
The dollar index .DXY fell 0.1% to 96.495, its lowest for
two weeks. The index is headed for a fall of 1% since Monday.
The euro EUR=EBS hit a high of $1.1319, up 0.2% on the
day, after French and German business activity strengthened more
than expected in June, according to surveys. The common
currency, up 0.9% since Monday, later settled at $1.1309.
"The Fed can do more than the ECB; simply because it is
further away from the lower limit in interest rates. As a result
the net effect is EUR-USD positive if both central banks switch
to an "expansionary" stance," Commerzbank analysts wrote.
The euro rose 0.2% versus the Swiss franc to 1.1106 francs
EURCHF=D3 , reversing some of Thursday's losses.
Sterling skidded 0.3% to $1.2699 GBP=D3 and 0.5% against
the euro to 89.30 pence EURGBP=D3 , as investors worried that a
government under Boris Johnson, the favourite to win the
Conservative Party leadership contest, would raise the risk of a
no-deal Brexit. Norway's crown, which surged on Thursday after the central
bank raised rates and signalled another round of tightening in
2019, gave back some of its gains but remained near 2-month
highs against the dollar NOK=D3 and the euro EURNOK=D3 .

(Editing by Gareth Jones)