* Dollar index rises towards 2019 high
* Pound plunges vs euro, dollar
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Adds context, chart, updates prices)
By Olga Cotaga
LONDON, Aug 20 (Reuters) - The euro hovered near a two-week
low against the dollar on Tuesday as higher Treasury yields the
day before boosted the U.S. currency. Political uncertainty in
Italy also held the euro back.
Yields on U.S. benchmark 10-year government bonds
US10YT=RR pulled away from three-year lows on Monday, helped
in part by the prospect of Germany ditching its balanced budget
policy and China providing more economic support measures.
Gains also came after Boston Fed President Eric on Monday
criticized further rate cuts by the Federal Reserve, as well as
from a Trump administration decision to extend a temporary
license for Chinese telecoms producer Huawei, analysts said.
Market focus is likely to shift now to the annual symposium
of global central bankers that begins on Friday at Jackson Hole,
Wyoming, but analysts doubt that will limit demand for dollars.
"Ahead of the Jackson Hole summit later this week, there
seems little reason for the dollar to weaken," said Lee Hardman,
currency analyst at MUFG.
The Treasury yield curve inverted last week, a signal of
impending recession that sent alarms through financial markets.
The curve of two-year and 10-year Treasury yields remained
steeper on Tuesday US2US10=RR .
The dollar index was flat at 98.375 .DXY after earlier
rising to a two-and-a-half-week high of 98.40. It reached its
2019 high of 98.932 at the beginning of the month.
The euro was also flat at $1.1078 EUR=EBS , but not far
from Friday's $1.1066 low, amid concern over political
developments in Italy. Against the Swiss franc, the euro was
down by 0.2% at 1.0855 EURCHF=EBS , near the two-year low of
1.0836 it reached last week.
In Italy, Prime Minister Giuseppe Conte will address
parliament at 1300 GMT on Tuesday to defend his record. He might
resign immediately afterwards, or he might wait for a formal
vote to make it clear he is being unseated by the League. A vote
has not been scheduled and there is widespread uncertainty over
how the political turmoil will end.
Deputy Prime Minister Matteo Salvini pulled the plug on the
ruling coalition earlier this month, hoping to trigger early
elections that would probably see him named prime minister.
"The possible success of the no-confidence vote in Italy
today could push euro/dollar towards and even below the
psychological 1.1000 level today," said Chris Turner, head of
forex strategy at ING.
Declines are unlikely to persist, he said, "because the
negative spillover into the euro from periods of political
uncertainty in Europe has been somewhat limited over the past
year."
Elsewhere, a stronger dollar pushed the offshore Chinese
yuan lower, matching a six-day low of 7.0770. The offshore yuan
was last trading neutral at 7.0702 CNH=EBS .
The pound was down by 0.5% both against the dollar and the
euro, last at $1.2076 GBP=D3 and at 91.77 pence against the
euro EURGBP=D3 .
British Prime Minister Boris Johnson made new waves by
writing to European Council President Donald Tusk on Monday to
propose replacing the Irish backstop with a commitment to put in
place alternative arrangements by the end of a post-Brexit
transition period. Johnson will meet both French President Emmanuel Macron and
German Chancellor Angela Merkel during the week and is also
planning to meet Irish Prime Minister Leo Varadkar in September.
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