Markets rattled as Turkish lira dives

Turkey’s President Recep Tayyip Erdogan is showing no signs of backing down in a standoff with the US that rattled markets. — Reuters pic

But they said the US tariff hike on Turkish steel at a time of "considerable stress" tells emerging economies not to expect Washington's help to calm their markets. "In our country we have Venus and Vestel", he said, referring to a Turkish-made phone made by electronics manufacturer Vestel.

On Tuesday, however, the lira recovered some ground, trading at 6.60 to the dollar at 1115 GMT, up around five percent on the day, after having crashed to an all-time low of 7.24 on Monday.

US and global markets fell on Friday and Monday, reflecting concerns that Turkey's problems could spread. It remains not far from the record low of 7.23 per dollar hit Sunday. Mr Erdogan, who has presided over soaring inflation and borrowing levels, said the lira's fall was the result of a plot rather than prevailing economic conditions.

The dispute between the North Atlantic Treaty Organisation allies - brought to a new intensity by Turkey´s holding of an American pastor for two years - has raised questions over the future of their partnership and fanned fears of a looming economic crisis in Turkey.

President Recep Tayyip Erdogan suggested that Turkey will stick to Samsung and Vestel if U.S. products are banned.

"It is rather unique with an emerging market which not only faces a domestic macroeconomic crisis but also an external political conflict with the main shareholder of the [International Monetary Fund]", commented Torsten Slok, chief global economist for Deutsche Bank.

Until the crisis in Turkey is over, "risk aversion is likely to remain elevated, which will continue to benefit mainly the currency safe havens", said Antje Praefcke, a currency strategist at Commerzbank in Frankfurt.

Brunson is at the center of a diplomatic spat between North Atlantic Treaty Organisation allies Turkey and the United States, which has helped trigger a Turkish currency crisis. The two countries already cooperate regarding Syria and have established close energy and trade ties.

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The financial regulatory body said violators could face two to five years in prison.

Investors are anxious about a confluence of factors: the country's reliance on foreign loans that may stop flowing in as interest rates rise in other economies, like the U.S.; Erdogan's insistence that the central bank not raise interest rates, as most independent analysts say it should; and a spat with the U.S. that has led to sanctions and the fear of greater isolation from longtime allies in the West.

Turkey's influential business groups have called on the government to implement tighter monetary policy to help overcome the country's currency crisis.

On Monday, the central bank announced a series of measures to "provide all the liquidity the banks need" - but offered no hint of a rate increase.

He tweeted: "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!"

The two North Atlantic Treaty Organisation allies have been at odds over several issues including, diverging interests in Syria, Ankara's plans to buy Russian defence systems and, most recently, Brunson's case.

Ankara has repeatedly said the Brunson case was up to the courts and a Turkish judge moved Brunson from jail to house arrest in July. Since then, Trump and Vice President Mike Pence have demanded his immediate release.

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