* Fed shift last week hurts dollar demand
* Euro highest since May 2018, dollar at new low
* China's yuan soars to strongest since May 2019
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
(Adds details after inflation data, charts, updates prices)
By Tommy Wilkes
LONDON, Sept 1 (Reuters) - The euro neared the $1.20 mark on
Monday after it scaled another 28-month high and the dollar
slipped to a multi-year low as investors bet the Federal
Reserve's policy framework meant U.S. rates would stay low for
longer.
The euro reached $1.1997 EUR=EBS in Asian trading hours,
its strongest since May 2018, taking its gains to 7.5% in three
months.
The Fed's announcement last week that it would tolerate
periods of higher inflation and focus more on average inflation
and higher employment has encouraged traders to sell the dollar.
U.S. political uncertainty ahead of November's presidential
election and concerns about U.S. economic recovery have also
weakened the greenback, with the euro the biggest beneficiary.
Euro zone flash inflation data for August was lower than
expected as energy prices fell sharply but it did not reverse
the euro's gains. ING analysts said "no imminent response from the ECB
(European Central Bank) is likely and as the U.S. dollar outlook
remains unappealing, the bias remains for higher EUR/USD this
week".
The euro was last up 0.3% at $1.1976 EUR=EBS .
The dollar index - which measures the U.S. currency against
a basket of rivals - was down 0.3% at 91.917 =USD at 1020 GMT
after earlier hitting its lowest since April 2018.
PIMCO money managers said the dollar was "set to decline
further" as the Fed keeps rates very low for years.
In previous depreciation cycles, they said the real
trade-weighted dollar had fallen some 15% to 20% relative to
current levels but even then the dollar would only be
"marginally undervalued". The Chinese yuan brushed off concerns about diplomatic
tension over Taiwan to reach its strongest since May 2019.
In offshore markets, the dollar fell 0.5% against the yuan
to 6.8135 CNH=EBS .
Viraj Patel, FX and Global Macro strategist at Arkera, said
China's yuan rallying was a "sign of strong capital inflows".
"But Beijing's also allowing $USDCNY to move lower to avoid
attention from the White House over its FX policy," he added.
The dollar's decline saw several other currencies hit
milestones.
The British pound GBP=D3 gained 0.7% to $1.3465, the
highest since December, helped by dollar weakness and after
Japan's foreign minister said a broad agreement on a Japan-UK
trade deal was close.
The dollar fell to 0.9002 Swiss francs CHF=EBS , a shade
above the lowest in more than five years.
The Australian dollar AUD=D3 earlier hit its highest since
August 2018, at $0.7413 before the rally fizzled. Against the Japanese yen, the greenback eased 0.2% to 105.77
yen JPY=D3 .
The yen had jumped last week after Japanese Prime Minister
Shinzo Abe resigned on health grounds.
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Euro vs U.S. dollar https://tmsnrt.rs/3bfMC53
U.S. dollar valuations https://tmsnrt.rs/3hN7C5R
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(Editing by Ed Osmond and Barbara Lewis)