* Dollar weakens but not as much as Treasury yields
* Euro near 2-week lows following Lagarde nomination
* Yen edges upwards; Aussie backs off 2-month highs
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Updates prices)
By Tommy Wilkes
LONDON, July 4 (Reuters) - The euro was stuck near two-week
lows on Thursday and the dollar drifted away from recent highs
as sliding government bond yields pressured both currencies.
The global bond rally has accelerated this week on
expectations of more monetary easing from central banks,
although the impact on foreign exchange markets has been
limited, with overall volatility remaining low. Markets were closed in the United States on Thursday for its
Independence Day.
Adam Cole, an FX strategist at RBC Capital Markets, said
that while the big drop in U.S. Treasury yields was negative for
the dollar, the outright yield advantage that the United States
enjoyed over other countries was supporting demand for the
greenback and minimising the spillover into higher volatility.
"The dollar isn't falling much compared to how much U.S.
yields are coming down. It's explained by the level of yields
rather than the rate of change," he said.
The euro traded slightly higher at $1.1286 EUR=EBS . It has
weakened since IMF Managing Director Christine Lagarde,
perceived as a policy dove, was nominated as the next European
Central Bank president.
The dollar index was marginally lower at 96.734 .DXY .
The dollar has weakened in recent weeks as expectations
build for a Federal Reserve rate cut later this month, although
the index is off three-month lows of 95.843 plumbed in June.
TRADE TENSIONS
Waning expectations for a quick resolution of the U.S.-China
trade row have also hurt sentiment towards the dollar.
Adding to a sense of unease about trade talks, U.S.
President Donald Trump on Wednesday repeated his view that China
and the euro zone are manipulating their currencies.
But the dollar remains the dominant reserve currency.
International Monetary Fund data released recently showed the
dollar constituted 58% of global foreign exchange reserves in
the first quarter of 2019, up marginally from the previous
quarter and far above the euro's 19% share.
The focus now shifts to U.S. non-farm payrolls data due on
Friday, which economists expect to have risen by 160,000 in
June, compared with a rise of 75,000 in May.
Some analysts think the dollar will hold its own in the
coming months, although the Japanese yen could act as a decent
hedge should the rally in global stocks come to an end.
"JPY strength is one area of the FX space which we think
will be a net drag on the value of the USD over the coming 3-6M,
despite the fact that the USD should continue to hold up well vs
the EUR and the RMB (Chinese renminbi)," said Stephen Gallo, a
strategist at BMO Capital Markets.
The yen was up slightly at 107.78 yen per dollar JPY=EBS ,
above five-month lows of 106.78 yen touched in June.
The Aussie was down 0.1% to $0.7022 AUD=D3 after earlier
hitting a two-month high.
Sterling changed hands at $1.2575 GBP=D3 , near two-week
lows hit on Wednesday after investors raised their bets that the
Bank of England would follow other central banks and ease
policy.
(Editing by Gareth Jones)