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Dollar cements gains as hedge funds cut short bets; lira slumps

03/22/2021 | 04:04am EDT

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

LONDON, March 22 (Reuters) - The U.S. dollar held near a four-month high on Monday after Turkey's President Tayyip Erdogan stunned investors over the weekend by replacing the hawkish central bank governor, sending shockwaves through global currency markets.

The lira slid 15% to near its all-time low and bond yields soared after Turkey's decision sparked fears of a reversal of recent rate hikes and undermined the bank's credibility.

Turkey's move comes against a backdrop of investors turning increasingly bullish on the prospects of the greenback in the short-term following rising U.S. Treasury yields and reinforces the safe-haven appeal of the greenback.

"Speculators finally capitulated to dollar strength," said Marshall Gittler, head of investment research at BDSwiss.

Benchmark yields on 10-year U.S. Treasury debt has risen for seven consecutive weeks and triggered an unwind of short dollar positions across the board against every major currency.

Traders cut their long euro bets to their lowest levels since June 2020 while net positions against the Japanese yen flipped into positive territory for the first time in more than a year, according to latest positioning data.

JP Morgan increased its long U.S. dollar position in its currency portfolio by shorting the Swedish crown along with existing shorts of the euro, Swiss franc and the Japanese yen.

Against a basket of its rivals, the dollar was broadly steady at 92.022 and within sight of a near four-month high of 92.50 hit earlier this month.

Worries that events in Turkey will ripple over into other currencies also supported the dollar.

"Other emerging market countries are not in the same position as Turkey, but there still could be some contagion," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

The Turkish lira stood at 7.9600 per dollar, down nearly 10% from its close on Friday. At one point the lira fell by as much as 14.9% to 8.4850, which is close to a record low of 8.5800.

The euro fell slightly to $1.1892.

A decline in risk appetite weighed on the Australian dollar , which fell 0.3% to $0.7724. The New Zealand dollar fell 0.1% to $0.7158.

(Reporting by Saikat Chatterjee; editing by Philippa Fletcher)

ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / CANADIAN DOLLAR (AUD/CAD) 0.27% 0.92963 Delayed Quote.-5.95%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.40% 0.62547 Delayed Quote.-1.60%
AUSTRALIAN DOLLAR / JAPANESE YEN (AUD/JPY) 0.46% 80.97 Delayed Quote.1.27%
AUSTRALIAN DOLLAR / NEW ZEALAND DOLLAR (AUD/NZD) -0.17% 1.04799 Delayed Quote.-1.60%
AUSTRALIAN DOLLAR / SWISS FRANC (AUD/CHF) 0.40% 0.67114 Delayed Quote.-2.13%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.29% 0.74196 Delayed Quote.-4.33%
BRITISH POUND / AUSTRALIAN DOLLAR (GBP/AUD) -0.18% 1.87815 Delayed Quote.6.29%
CANADIAN DOLLAR / AUSTRALIAN DOLLAR (CAD/AUD) -0.27% 1.075766 Delayed Quote.6.32%
CANADIAN DOLLAR / EURO (CAD/EUR) 0.12% 0.673015 Delayed Quote.4.67%
EURO / AUSTRALIAN DOLLAR (EUR/AUD) -0.39% 1.59835 Delayed Quote.1.67%
EURO / SWEDISH KRONA (EUR/SEK) -0.15% 10.1953 Delayed Quote.1.52%
NORWEGIAN KRONER / SWEDISH KRONA (NOK/SEK) 0.14% 0.9767 Delayed Quote.1.57%
RIPPLE (XRP/BTC) 0.00% 1.9E-5 Real-time Quote.137.50%
RIPPLE (XRP/EUR) -2.03% 0.59124 Real-time Quote.237.06%
RIPPLE - UNITED STATES DOLLAR -2.10% 0.70146 Real-time Quote.227.01%
US DOLLAR / TURKISH LIRA (USD/TRY) 0.31% 8.43 Delayed Quote.12.40%
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