* Euro hovers around $1.14, hits new 3-month high
* Yen rises above 107 vs dollar, highest since January
* Analysts divided on whether dollar weakness will last
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, June 25 (Reuters) - The U.S. dollar fell to a three-month low against the euro and dropped to its weakest against the Japanese yen since early January as the prospect of monetary easing by the Federal Reserve knocked demand for the U.S. currency.
The euro hit a three-month high of $1.1412, having gained 2.0% from a two-week low of $1.1181 touched a week ago as the dollar has lost steam. It last stood at $1.1396.
The dollar was last down 0.3% at 106.97, having only fallen below 107 yen per dollar in the January flash crash and then last back in April 2018.
The yen has benefited from investor nerves over tensions between the United States and Iran. Tehran said on Tuesday that U.S. sanctions permanently closed the path to diplomacy between the two countries.
Selling in the dollar has accelerated after the U.S. Federal Reserve last week signalled it would cut interest rates before year-end on mounting worries about an economic slowdown and the fallout from tariff wars between U.S. President Donald Trump and China.
U.S. 10-year Treasury yields again fell below 2% in earlier trading, reducing the interest rate advantage the dollar has enjoyed over rivals in recent years.
“We expect the Fed’s pre-emptive cuts to temporarily weigh on the USD, especially vs. G10 currencies, as the US rates advantage compresses amid an environment of slowing global growth,” said Marvin Barth, foreign exchange strategist at Barclays.
“However, the Fed’s ability to support an extended US expansion stands in contrast to clear sustained slowing – and rising risks – in China and Europe, implying a USD rebound in 2020.”
The dollar index against a basket of six major rivals fell to its lowest level in three months to 95.843, having lost 1.7% during the latest five sessions, and was last down 0.1% at 95.909.
Fed Chairman Jerome Powell and a few other of its policymakers are due to speak later on Tuesday.
Investors are waiting to see whether Trump and Chinese President Xi Jinping would at least call a truce in their trade war when they meet at the G20 summit in Osaka late this week.
Trump considers his meeting with Xi an opportunity to “maintain his engagement” and see where China is on their trade dispute, a senior U.S. official said on Monday.
Kazushige Kaida, head of forex at State Street Global Markets in Tokyo, said he believes the current market consensus is that the two leaders are “unlikely to agree on a deal”.
Elsewhere, sterling benefited from the broad dollar weakness, rising to $1.2765, up 0.2% on the day.
The pound, however, is likely to remain under pressure because of Brexit concerns, with eurosceptic Boris Johnson the frontrunner to become the next leader and prime minister.
The euro was slightly firmer against the Swiss franc, at 1.1089 francs. (Editing by Angus MacSwan)