The U.S. dollar hit three-week lows against a currency basket on Tuesday as growing expectations for an interest rate cut by the Federal Reserve pressured Treasury yields, while persistent concerns over the global growth outlook boosted the safe haven yen.

The benchmark 10-year Treasury's yield fell to its lowest since September 2017 overnight, near 2%, after St. Louis Federal Reserve President James Bullard said a rate cut "may be warranted soon" given weak U.S. inflation and the threat to economic growth posed by global trade tensions.

The Japanese yen has been the main beneficiary from the flight to safety. It was near four month highs at 108.0 yen per dollar by 04:02 AM ET (08:02 GMT).

The firm yen weighed on the dollar index, which was at 97.067 after hitting a three-week trough of 96.917 overnight.

"As long as it (the dollar) is at the center of the trade conflict, U.S. yields fall due to concerns about real economic effects and the market is literally calling out for rate cuts, there are no positive arguments supporting the dollar," Commerzbank analyst Antje Praefcke said.

Other strategists were less bearish on the dollar, arguing that rate cuts had already been priced into the currency and noting that if global growth does worsen, the dollar should benefit from its safe-haven credentials.

The euro rose 0.2% to 1.1261, helped by dollar weakness.

The European Central Bank meets on Thursday, and investors are also eyeing flash euro zone inflation data due at 0900 GMT. Analysts remain cautious on its prospects.

"Considering the euro zone's close ties with the Chinese economy, the euro is one of the currencies that stands to be most affected by a Chinese economic downturn - a risk associated with the escalating U.S.-China trade war," said Tokyo-based Junichi Ishikawa, senior FX strategist at IG Securities.

Elsewhere, the Australian dollar was little changed after the Reserve Bank of Australia cut interest rates to a record low of 1.25%, as expected.

The British pound was little changed at 1.2656 up from a five-month trough of 1.2560 set on Friday.

Sterling has fallen on the prospect of a eurosceptic prime minister replacing Theresa May who could push for a more decisive break from the European Union, Britain's largest trading partner.