* Lira near record lows on geo-political, inflation worries
* Russia’s rouble touches five-week high
* EMRG currencies hit 2-month high on weak dollar
April 26 (Reuters) - A weaker dollar lifted emerging market currencies to two-month highs on Monday, helping Turkey’s lira stabilise after it fell to a near all-time 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 8.3-per-dollar 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 unorthodox view that it causes inflation.
“There are lingering concerns that the new central bank governor will keep dovish policies despite a challenging inflation outlook, which we expect will further weaken the lira in the next six months,” added Christensen.
The Russian rouble strengthened by 0.3%, touching a five-week high against the dollar, boosted by fading sanctions and geopolitical risks after Russia began withdrawing troops from near its border with Ukraine last week.
The MSCI index of emerging market currencies also rose 0.3%, reaching a two-month high as weakness in the dollar benefited risk-driven assets. But a damaging new wave of COVID-19 infections held back major gains.
The greenback slumped to an almost eight-week low versus major peers amid speculation that U.S. Federal Reserve Chairman Jerome Powell will shun talk of tapering bond purchases at a policy meeting this week.
Most central European currencies slipped, with the Hungarian forint and Polish zloty down 0.1%.
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For RUSSIAN market report, see (Reporting by Shashank Nayar in Bengaluru Editing by Mark Heinrich)