A weaker dollar lifted emerging market currencies to twomonth highs on Monday, helping Turkeys lira stabilise after it fell to a near alltime low on worries about souring U.S. relations and a dovish policy under a new central bank chief.

The lira, among the worst performing EM currencies this year, had sunk as much as 1.3 to 8.48 per dollar earlier in the session its closest to a record low of 8.58 hit in November.

It was last trading up at the 8.3perdollar level, with data showing an improving business confidence among Turkish manufacturers in April.

U.S. President Joe Biden said on Saturday that the 1915 massacres of Armenians in the Ottoman Empire constituted genocide, a historic declaration that infuriated Turkey and worsened frayed relations between the NATO allies.

What is playing into the lira is the U.S. being ready to take a hawkish stance in terms of politics, which raises the fear of Turkish assets falling further, said Jakob Christensen, head of EM research at Danske Bank.

Turkish assets are particularly sensitive to strains in relations with Washington given past fallout from U.S. sanctions and economic threats, including a spat in 2018 with then President Donald Trump that sparked a lira crisis and recession.

Furthermore, the lira has been on a significant downtrend since President Erdogan sacked Naci Agbal as central bank governor on March 20 and appointed Kavcioglu, who like Erdogan is a critic of tight monetary policy and has espoused the…