* Swedish crown rises to four-month high vs euro
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Olga Cotaga and Saikat Chatterjee
LONDON, Nov 29 (Reuters) - The euro held near two-week lows on Friday as a combination of record low currency market volatility and hopes the United States and China would be able defuse their damaging tariff war with a preliminary trade deal boosted demand for the greenback.
Trading ranges in euro/dollar, the most liquid currency pair in the world, were the narrowest in 20 years, falling to around 20 pips on Monday, analysts at Nordea said. A pip is the smallest price move a currency pair can make, equivalent to the third decimal place for most currency pairs and the fourth for the most liquid.
As daily price swings have narrowed, expectations of future currency market moves have also dropped, with three-month implied volatility gauges for euro/dollar falling to 4.27%, the lowest on record, down from 7.16% in January.
The drop in currency market volatility has fuelled appetite for carry trades where investors borrow in currencies with low or negative interest rates and invest in relatively higher yielding ones. So far in 2019, the euro has weakened more than 4% against the dollar.
"If any strategy has worked with some amount of reasonable success in the currency markets this year, it is a carry-trade one," said a sales trader at a European bank in London.
On Friday, the single currency edged 0.1% lower to $1.1003, just above $1.0993 hit earlier this week which was the lowest since Nov. 14. Trading was quieter than usual with U.S. markets shut overnight for the Thanksgiving holiday.
Broadly, the U.S. currency gained against its peers from data showing the world's biggest economy is on a firm footing, which prompted investors to scale back rate-cut bets.
U.S. economic growth picked up slightly in the third quarter, data showed on Wednesday, in contrast to other indicators pointing to a slowdown in global activity.
The Federal Reserve also flagged an upbeat outlook amid signs of labour market strength and a possible turnaround in business investment.
Against a basket of currencies, the dollar was broadly steady around 98.37, but set for the biggest monthly gain since July.
Though data showed eurozone inflation accelerated faster than expected in November on a rise in food and services prices, annual inflation rates remained far lower than European Central Bank expectations.
"Any euphoria related to this is likely to be limited," said Thu Lan Nguyen, a currency analyst at Commerzbank, noting that the rise was due to the change in the calculation methodology.
Members of the European Central Bank are discussing the potential for a new definition of the inflation target, which now stands at below, but close to 2%.
The Chinese yuan -- the most sensitive currency to the trade war -- was also flat and inside its recent range even as China vowed to impose "firm countermeasures" after U.S. President Donald Trump's approval of a bill backing Hong Kong's pro-democracy protesters on Wednesday. China is yet to indicate whether there would be any bearing on trade talks.
Negotiators from the world two biggest economies have been trying for weeks to hammer out a 'phase 1" trade deal, with markets hoping an agreement could be signed before year-end.
"There seems to be pretty good optimism around the trade talks going on between U.S. and China," said William O'Loughlin, a portfolio manager at Rivkin Securities in Sydney.
"Though as we know that can change on a dime...the (dollar) rally doesn't feel like a euphoric, super-bullish rally, it does feel like climbing the wall of worry."
Elsewhere, the Swedish crown reached a four-month high versus the euro at 10.51 on the back of better-than-expected third-quarter gross domestic product data. After months of acute weakness, the Swedish currency started to gain last month.
(Reporting by Olga Cotaga; Additional reporting by Tom Westbrook in Singapore Editing by Shri Navaratnam and Kirsten Donovan)