* 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 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 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.
The dollar index fell 0.1% to 96.495, its lowest for two weeks. The index is headed for a fall of 1% since Monday.
The euro 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 , reversing some of Thursday’s losses.
Sterling skidded 0.3% to $1.2699 and 0.5% against the euro to 89.30 pence, 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 and the euro. (Editing by Gareth Jones)