ISTANBUL (Reuters) -Turkey’s lira rebounded 1.5% on Monday and retreated from near an all-time low as locals took advantage of recent weakness to sell dollars, though concerns lingered over U.S. relations and pending interest rate cuts. The currency, among the worst emerging markets performers this year, firmed to 8.3 versus the dollar. Earlier in the day it weakened to 8.485, its 2021 low and close to its record of 8.58 reached in early November. “In the forex selling we see locals taking advantage of the near-record levels (including for) end-month tax payments,” said a treasury desk trader at one bank. The lira had shed 3.5% over the last three trading days as it became clear that U.S. President Joe Biden would officially recognise the 1915 massacres of Armenians in the Ottoman Empire as a genocide. Turkey, a NATO ally, sharply criticised the White House’s decision announced on Saturday, and said it undermined trust and friendship. 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. President Tayyip Erdogan was set to address the genocide issue later on Monday. The trader called Turkey’s initial reaction “moderate,” which gave the lira some reprieve. Adding to investors’ jitters, Central Bank Governor Sahap Kavcioglu, appointed a month ago, said late on Friday that while he would keep monetary policy tight for now, any rate hike would send a bad message for the real economy. RATE CUTS Before Monday’s gains, the lira had dipped the last six straight trading days. It plunged as much as 15% last month after Erdogan sacked Naci Agbal, a respected policy hawk, as central bank governor and appointed Kavcioglu, who like Erdogan is a critic of tight monetary policy and has espoused the unorthodox view that it causes inflation. Analysts expect the bank to begin cutting rates around mid-year and some predict Kavcioglu could revert to a costly past policy of selling foreign currency (FX) reserves to support the lira. The political opposition has pressed Erdogan to account for some $128 billion in sales in 2019 and 2020, which were made by state banks and backed by central bank swaps, sharply depleting its FX reserves. In the interview, Kavcioglu defended the sales in the face of what he called “attacks” that began with the 2018 crisis. Kavcioglu “seemed quite confident about the quality of reserves,” said Ozlem Derici Sengul, founding partner at Spinn Consulting. But “losing assets and holding liability means the system remains quite fragile against a situation like a bank run where households and companies need their FX deposits,” she said. Erdogan has fired three central bank chiefs in two years, eroding monetary credibility