NEW YORK: The dollar advanced to a 13-month peak on Tuesday against a basket of major currencies as traders increased their safe-haven holdings of the US currency on worries about the fallout from the Turkish lira's recent fall.
While the lira rebounded from an all-time low, concerns about European banks' exposure to the country spurred selling of the euro, sending it to 13-month lows against the greenback and Swiss franc.
An index that tracks the dollar against the euro, yen, sterling and three other currencies touched 96.794, the highest since June 2017. It was last up 0.4 percent at 96.762.
The Turkish lira has lost more than 40 percent of its value against the dollar this year, hit by worries over President Tayyip Erdogan's calls for lower interest rates and fraying ties between the United States and Turkey, a NATO ally. .
On Tuesday, however, the lira recovered some ground, trading at 6.4300 to the dollar at 1827 GMT, up 6.8 percent on the day, after plunging to an all-time low of 7.24 on Monday.
Sanctions imposed by Washington on Ankara have stoked anxiety about Turkey's economy, already bogged down by double-digit inflation.
The currency was supported by remarks from Turkish finance minister Berat Albayrak, who told a news conference the lira will strengthen.
"I don't believe it's all over," said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California. "We are just getting a bit of reprieve from the recent down move."
Concerns have lingered about European banks' loans to Turkey, stoking selling of regional stocks and the single currency, analysts said.
The euro declined to $1.1330, the lowest since July 2017, before edging to $1.13335, down nearly 0.7 percent on the day .
The common currency touched a 13-month low at 1.12660 Swiss franc before moving to $1.12775, down 0.4 percent, according to EBS data.
The euro held above a 10-plus week low against the yen reached on Monday. It was last down 0.2 percent at 126.08 yen.
The lira's bounce lifted other emerging market currencies that were slammed by fears about capital outlooks from the rest of the sector if Turkey's woes spread.
The South African rand rose nearly 1 percent, while the Indian rupee steadied above an all-time low set earlier Tuesday.
"The worst of the broader contagion fears is likely behind us, and we do not expect further knock-on effects from Turkish concerns for the major currencies or for global financial markets more broadly," said Erik Nelson, currency strategist at Wells Fargo Securities in New York.