* Euro, yen hit highs vs dollar overnight
* Tumbling Treasury yields blunt U.S. rate advantage
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, March 6 (Reuters) - The dollar fell further against the euro and yen on Friday as sliding U.S. Treasury yields eliminated more of its interest rate advantage over other currencies.
Mounting fears over the effects of the coronavirus have driven a drop in expectations for U.S. rates. Markets now bet the Federal Reserve will have to cut rates by 50 basis points for a second time this month.
The resulting collapse in Treasury yields has ended one of the most popular carry trades globally - borrowing at negative rates in the euro and yen to buy U.S. assets.
The euro has now reversed all its earlier losses for the year, rising from below $1.08 a few weeks ago to above $1.12.
ING analysts said they were targeting $1.15 in the coming weeks as aggressive U.S. rate cuts contrasted with the limited room for action at the European Central Bank. Fed fund futures were pricing in about 90 basis points of further easing by the end of the year.
“For now, expect USD weakness vs G10 FX to continue, and the G10 FX segment outperforming EM FX, with carry trades under pressure,” they said in a research note.
The euro last stood at $1.1234, after touching $1.1249, its strongest since August.
The dollar index was down at 96.438, close to its weakest this year.
Against the yen, the dollar dropped 0.3% to 105.82 yen . The yen is benefiting both from dollar weakness and its reputation as a safe haven.
The dollar was not weaker across the board. It still holds safe-haven status compared with emerging-market currencies and those exposed to commodities.
That left it holding gains against the Canadian, Australian and New Zealand dollars, along with currencies across Asia, where the coronavirus economic effect is pronounced.
Sterling stabilised after Thursday’s move higher. It was last up 0.1% at $1.2971.
Additional reporting by Wayne Cole in Sydney and Hideyuki Sano in Tokyo; editing by Larry King