FOREX-Dollar drops as rate cut bets mount, yen hits five-month high

* Dollar at three-week low; yen buoyed by global growth
fears
* Euro rises before May inflation numbers
* Aussie little moved after RBA cuts rates as expected
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Tommy Wilkes
LONDON, June 4 (Reuters) - The U.S. dollar fell to a
three-week low on Tuesday as rising bets on an interest rate cut
by the Federal Reserve weighed on Treasury yields, while broader
concerns about global growth sent investors buying into the
safe-haven yen.
The benchmark 10-year Treasury's yield US10YT=RR fell to
its lowest since September 2017 overnight, near 2%, after St.
Louis Federal Reserve President James Bullard said a rate cut
"may be warranted soon" given weak U.S. inflation and the threat
to economic growth posed by global trade tensions. The Japanese yen has been the main beneficiary from a shift
towards assets investors deem a safer bet. It rose 0.2% to
107.845 JPY=EBS yen per dollar, its strongest since
mid-January.
That hurt the dollar, which against a basket of currencies
was down 0.1% to a three-week low .DXY , falling below 97 for
the first time since April 18.
"As long as it (the dollar) is at the centre of the trade
conflict, U.S. yields fall due to concerns about real economic
effects and the market is literally calling out for rate cuts,
there are no positive arguments supporting the dollar,"
Commerzbank analyst Antje Praefcke said.
Other strategists were less bearish on the dollar, arguing
that rate cuts had already been priced into the currency and
noting that if global growth does worsen, the dollar should
benefit from its safe-haven credentials.
The euro rose 0.3% to $1.1274 EUR=EBS , its highest since
April 18, helped by dollar weakness.
The European Central Bank meets on Thursday, and investors
are also eyeing flash euro zone inflation data due at 0900 GMT.
Analysts remain cautious on its prospects.
"Considering the euro zone's close ties with the Chinese
economy, the euro is one of the currencies that stands to be
most affected by a Chinese economic downturn - a risk associated
with the escalating U.S.-China trade war," said Tokyo-based
Junichi Ishikawa, senior FX strategist at IG Securities.
Elsewhere, the Australian dollar was little changed after
the Reserve Bank of Australia cut interest rates to a record low
of 1.25%, as expected. The pound GBP=D3 rose 0.2% to $1.2684, up from a
five-month trough of $1.2560 set on Friday.
Sterling has fallen on the prospect of a eurosceptic prime
minister replacing Theresa May who could push for a more
decisive break from the European Union, Britain's largest
trading partner.