* 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 (Adds graphic, no change to text)
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. It last stood at $1.1382, down 0.1% on the day.
The dollar dropped 0.4% to as low as 106.78, having only fallen below 107 yen per dollar in the January flash crash and then last back in April 2018.
The yen has also 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 since the U.S. Federal Reserve signalled last week it would cut interest rates before year-end on mounting worries about an economic slowdown and the fallout from tariff wars between the United States 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 versus G10 currencies, as the U.S. 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 U.S. expansion stands in contrast to clear sustained slowing – and rising risks – in China and Europe, implying a USD rebound in 2020.”
The dollar index fell to a three-month low of 95.843, having lost 1.7% during the latest five sessions, and was last down 0.1% at 95.909.
The yen also rallied against the euro, adding 0.4% to 121.82 yen, while versus the British pound it was 0.2% ahead at 136.45 yen.
“Yen strength has been encouraged overnight by more risk-averse trading conditions in response to building concerns both over slowing global growth and rising geopolitical tensions between the U.S. and Iran,” MUFG analysts said in a note.
Fed Chairman Jerome Powell was due to speak later on Tuesday.
Investors are waiting to see whether U.S. President Donald Trump and Chinese President Xi Jinping will at least call a truce in their trade war when they meet at a summit of the G20 major economies in the Japanese city of 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.
Elsewhere, sterling benefited from the broad dollar weakness, rising to $1.2754, up 0.1% on the day.
However the pound 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 0.3% firmer against the Swiss franc at 1.1108 francs, off almost 2-year lows of 1.1057 francs touched last week.
Editing by Gareth Jones