FOREX-Euro weakens as dollar holds ground despite Fed rate cut bets

* Euro edges down before ZEW reading
* New Zealand dollar gets inflation boost
* Sterling back below $1.25
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Tommy Wilkes
LONDON, July 16 (Reuters) - The euro fell on Tuesday as
investors waited for a sentiment reading of Germany's economy,
although the prospect of more central bank easing starting with
the Federal Reserve later this month kept currency moves
limited.
The single currency stood at $1.1251 EUR=EBS in early
London trading, down slightly on the day.
Foreign exchange markets have been notably quiet in recent
weeks, with investors focused on economic data releases to
decide when and by how much central banks will seek to stimulate
their economies.
Volatility in currency markets has plummeted in recent
weeks, according to the Deutsche Bank Currency Volatility Index
.DBCVIX .
Markets expect the Federal Reserve to cut rates later in
July, but the dollar has held its own. The dollar index was up
0.1% at 97.035 .DXY , a fair way from its June lows of 95.843.
The ZEW economic sentiment survey in Germany is due at 1000
GMT, while U.S. retail sales numbers for June arrive later on
Tuesday.
Commerzbank analysts said they expected the dollar
exchange-rate reaction to the US data to be modest. It would
only strengthen once Fed officials confirmed its direction, they
said.
Sterling was back on the ropes, falling below $1.25 as
Brexit and economy concerns weigh ahead of British labour market
date for the month of June due at 0930 GMT.
The yen dropped 0.1% to 108.05 yen JPY= per dollar.
The U.S. currency rose to a six-week high of 108.990 yen
last week but slid after Federal Reserve Chairman Jerome Powell
set the stage for a rate cut later this month by highlighting
uncertainties facing the world's largest economy.
The dollar lost further ground against the yen towards the
end of last week after Chicago Fed President Charles Evans said
on Friday that "a couple" of rate cuts were needed to boost
inflation. "Dollar/yen has strengthened its correlation with U.S.
yields since mid-May, rather than move in step with equity
prices," said Daisuke Karakama, chief market economist at Mizuho
Bank.
The yen, a safe haven, has often depreciated when stronger
investor risk appetite has boosted equities. But the correlation
has weakened in the face of falling U.S. yields, which has seen
the 10-year yield US10YT=RR decline to near three-year lows
this month amid looming easing by the Fed.
The New Zealand dollar NZD=D3 rose 0.2% to $0.6729, pushed
higher by a strong inflation reading. The Swiss franc, which as a perceived safe haven has
benefited from concerns about the euro zone economy, rose
marginally to 1.1077 francs per euro EURCHF=EBS , not far from
two-year highs of 1.1057 touched in June.