Falling lira pushes Turkey towards uncharted territory

The lira went into free-fall sinking more than 10 percent

Turkey said it would respond to the new USA tariff action "without delay" and warned the move would further harm relations between the two countries.

I have just authorised a doubling of tariffs on steel and aluminium with respect to Turkey as their currency, the Turkish lira, slides rapidly downward against our very strong dollar!

"Don't forget", he said, "if they have their dollars, we have our people, our God". The president launched his steel and aluminum tariffs on the grounds that maintaining a robust domestic metal industry was a core national-security interest of the United States, and that competition with metal imports was threatening to drive said industry into extinction.

The lira has always been falling on worries about Mr Erdogan's influence over monetary policy and worsening relations with the United States.

"Aluminum will now be 20% and Steel 50%".

Erdogan appealed to Turks to exchange dollars and gold for Turkish lira to support the plunging currency.

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Relations between Washington and Turkish President Recep Tayyip Erdogan also have worsened because of the detention of three locally employed USA consular workers, trade matters and differences over Syria.

The Turkish President, Recep Tayyip Erdogan, took a combative stance in an earlier press conference, pledging to "overcome this economic war". He denies the charges.

Ankara is under pressure to adopt orthodox steps to protect the lira by aggressively increasing interest rates to rein in double-digit inflation, a move Erdogan has publicly opposed.

This week, the Turkish lira has fallen 23% against the dollar, losing almost a quarter of its value.

Some US officials say Turkey is holding Brunson as a bargaining chip after an executive at Turkey's state-owned Halkbank was convicted and imprisoned in the United States in May for helping Iran evade US sanctions. (The last substantial hike was in January 2018; before then, it was in late 2013, when Turkey was dealing with the end of the U.S. Federal Reserve's quantitative easing program.) The country could also place controls on capital, but those can hamper private sector activity and won't be easy considering the government's relative inability to totally control private capital.

"In that sense, the Turkey situation can be a contagion not only in Europe but across emerging markets", Anderson said.

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Treasury and Finance Minister Berat Albayrak - who is Erdogan's son-in-law - was scheduled later on Friday to outline a 'new economic model'. Trump, who had secured the release of a Turkish woman activist being held by Israel and just days earlier he had been exchanging fist bumps with Erdogan at a North Atlantic Treaty Organisation summit in Brussels, took it as a personal affront. On Thursday, he urged supporters not to worry, saying that while overseas investors had dollars, Turks had Allah.

A combination of factors, according to experts, have led to fears the country is sliding into an economic crisis. The U.S. responded by slapping sanctions on Turkey and threatening more. According to figures from the Turkish Government, for the period of 2002 to October 2017, Turkish direct investments in the United States reached $3.7 billion while USA investments in Turkey amounted to $11.1 billion, second only to the Netherlands' 21.6 billion.

The diplomatic dispute with the USA was one of the triggers that turned market jitters into a full-blown route this week.

Turkish President Recep Tayyip Erdogan says his country is at war and will not lose. In the first 10 trading days of August, the U.S. Dollar Index hit 1-year highs, driving EUR/USD to its lowest level since July 2017.

Trump's tweet sent the already-depreciating Turkish lira into free fall, and appeared to bring other developing market currencies - and the euro - down with it.

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