* 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
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 stood steady at $1.2519 following an overnight loss of 0.5%. A slip below $1.2439 would take sterling to its lowest since early January.
The euro was little changed at $1.1251 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 107.900 yen.
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 giving a sombre outlook on 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.
The dollar index versus a basket of six major currencies was nearly flat at 96.921 after edging up 0.13% the previous day.
The Australian dollar was unchanged at $0.7038 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. (Reporting by Shinichi Saoshiro Editing by Jacqueline Wong)