FOREX-Sterling sags on Brexit concerns, weighs on euro

* Pound nears 6-month low following sizeable overnight drop
* Fed rate cut prospects keep dollar/yen under pressure
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Adds details and quotes, updates prices)
By Shinichi Saoshiro
TOKYO, July 16 (Reuters) - The pound struggled near a
six-month low against the dollar on Tuesday, hampered by
persistent worries over Brexit that, in turn, weighed on the
euro.
The dollar fought for traction against the yen as the
prospect of a Federal Reserve interest rate cut later in the
month continued to keep the greenback on the defensive.
The pound GBP=D4 was a shade lower at $1.2515 following an
overnight loss of 0.5%. A slip below $1.2439 would take sterling
to its lowest since early January.
The euro EUR= was little changed at $1.1260 after shedding
0.1% the previous day, constrained by expectations for a dovish
European Central Bank meeting next week.
Sterling was under pressure as investors were nervous about
the prospect of eurosceptic Boris Johnson winning the
Conservative party leadership contest and becoming the next
British prime minister as early as the end of this month.
Poor economic data and signals from the Bank of England that
it could cut interest rates instead of raising them as
previously expected have also hit the pound.
"The euro has been weighed by the long struggling pound,
which in turn is likely to suffer from Brexit-related woes until
the Conservative party leader is decided next week," said Yukio
Ishizuki, senior currency strategist at Daiwa Securities.
The dollar was little changed at 107.960 yen JPY= .
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.
"Prior expectations that higher equities would weaken the
yen held by some market participants have been dashed
completely."
The prospect of the Fed easing monetary policy has been a
boon to equities, with Wall Street shares advancing to record
highs over the past week.
The yen, a perceived 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 dollar index .DXY versus a basket of six major
currencies was nearly flat at 96.924 after edging up 0.13% the
previous day.
The Australian dollar AUD=D4 was almost unchanged at
$0.7037 after gaining about 0.3% the previous day, getting a
lift from Chinese economic data which either matched or beat
market forecasts.
The Aussie is sensitive to the economic fortunes of China,
Australia's largest trading partner.