FOREX-"Perfect storm" for dollar as bets on U.S. rate cuts grow

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, June 12 (Reuters) - The dollar fell on Wednesday as rising trade tensions between Washington and Beijing and growing bets on a U.S. interest rate cut sapped investor demand for the currency.

Against a basket of other currencies, the dollar edged 0.1 percent lower to 96.64 and just above a two-and-a-half-month low of 96.46 reached last week.

The dollar has suffered a setback after the latest escalation of the U.S.-China trade, which analysts fear could tip the global economy into recession.

Those fears have grown as recent data have pointed to a global economic slowdown. Chinese factory inflation slowed in May and Fed officials have become increasingly cautious. That has fuelled expectations of U.S. rate cuts, a shift from a few months.

A Fed watch tool by CME assigns a 18% probability of a U.S. rate cut next week and a 68% probability of a cut in July.

"This is a perfect storm for the dollar, and that is also undermining risk appetite broadly in the market," said Ricardo Evangelista, a senior analyst at ActivTrades in London.

The dollar slipped as much as 0.2% against the pound , taking its losses to nearly 1% so far this month.

It also weakened against the Hong Kong dollar, which rose towards the midpoint of a daily trading range as bond auctions and large listings in the local stock market sucked cash from the local market.

The local dollar also strengthened as the city was roiled by violent protests against an extradition bill that would allow people to be sent to mainland China.

VALUATIONS

The dollar's latest drop comes as U.S. President Donald Trump accused the European Union of devaluing the euro zone's single currency. He also renewed his attacks on the Fed and its monetary policy

That has raised concerns that the trade tensions between the United States and the rest of the world will only intensify.

"The comments about the euro support our view that it’s not just about China," Brown Brothers Harriman strategists said. "Come November, auto tariffs will come back into focus with the EU and Japan on the front lines."

(Reporting by Saikat Chatterjee; editing by Larry King)