* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Investors still expect Fed to cut rates in July
* U.S.-Iran tension supports yen
* Focus shifts to BoE inflation report, G20 summit
By Stanley White
TOKYO, June 26 (Reuters) - The dollar edged up from a
three-month low on Wednesday, as investors dialled back
expectations for aggressive U.S. rate cuts next month but
broader conviction the Federal Reserve will need to ease policy
soon capped greenback gains.
Fed Chairman Jerome Powell on Tuesday stressed the central
bank's independence from U.S. President Donald Trump, who is
pushing for aggressive rate cuts. While this hosed down
expectations for a half percentage point cut at the Fed's July
meeting, investors are still expecting at least a quarter
percentage point reduction. The dollar index against a basket of currencies .DXY stood
at 96.176 on Wednesday, just above a three-month low of 95.843
touched on Tuesday.
The yen traded near its highest versus the dollar in more
than five months and is likely to edge higher as military
tensions between the United States and Iran boost demand for
safe-haven currencies.
However, trading is likely to subdued as the focus shifts to
a meeting between Trump and Chinese President Xi Jinping at a
Group of 20 summit over the weekend, but expectations are low
for a breakthrough that would end the dispute between the
world's two-largest economies.
"The dollar's upside is heavy, particularly against the
yen," said Junichi Ishikawa, senior foreign exchange strategist
at IG Securities.
"Powell is worried about curbing excess expectations, but
Treasury yields are clearly heading lower and U.S. economic data
are not looking great. A rate cut in July is a done deal."
Interest rate futures traders are now pricing in a 33%
chance of a 50 basis point cut at the Fed's July meeting, down
from 38% earlier, while a cut of at least 25 basis points is
seen as certain, according to the CME Group's FedWatch Tool.
FEDWATCH
Despite the slight moderation in Fed cut hopes, benchmark
10-year U.S. Treasury yields slipped below 2% due to worries
about a prolonged U.S.-China trade war.
The U.S. currency was little changed at 107.16 yen JPY=
after falling to 106.77 yen, its lowest since its flash crash in
early January.
The euro EUR= traded at $1.1367, pulling back slightly
from a three-month high of $1.1412.
The British pound GBP=D4 traded at $1.2690, stuck near a
session low before the Bank of England publishes its
closely-watched quarterly inflation forecasts later on
Wednesday.
The BoE has said rates would need to rise in a gradual
fashion as long as Britain avoids a no-deal exit from the
European Union.
However, sterling remains dogged by concerns that
eurosceptic Boris Johnson will become Britain's next prime
minister, increasing the chance of a no-deal Brexit.
(Editing by Sam Holmes)