The Turkish lira tumbled to a fresh low near 6.5 per dollar on Friday, before paring some of its losses to trade at 5.9 against the dollar.
This came after the currency fell as much as 14 percent to hit a record-low of 6.49 in early trade on Friday as worries intensified over a diplomatic crisis with the United States, as well as weak economic intervention from Turkish authorities.
Furthermore, U.S. President Donald Trump on Friday said he authorized doubling of steel and aluminum tariffs on Turkey.
"I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!" Trump tweeted.
I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!
— Donald J. Trump (@realDonaldTrump) August 10, 2018
There are also mounting concerns over the ripple effect that Turkey's economic crisis could have on European banks. The Financial Times reported on Friday morning that the European Central Bank (ECB) is concerned over the exposure of several Eurozone lenders to Turkey.
The FT report mentioned that Spain’s BBVA, France’s BNP Paribas, and Italy’s UniCredit could particularly be affected by the Turkish Lira’s ongoing depreciation.
The lira has plunged by more than 20 percent against the dollar since the start of 2018, which has caused inflation in Turkey to soar. Turkey's consumer price inflation in July jumped 15.85 percent year-on-year, a 14-year high, according to official data released on August 3. The country's Treasury and Finance Minister Berat Albayrak has previously stated the government’s “number one goal" is to to introduce measures to lower inflation and interest rates.
Ankara's latest diplomatic rift with Washington has also added on to its economic pressures.
It was reported on Thursday that a Turkish delegation held talks with the U.S. State Department in an attempt to defuse tensions between Washington and Ankara that erupted over Turkey’s detention of American pastor Andrew Brunson.
After the meeting, the U.S. State Department said the two sides “discussed a range of bilateral matters including pastor Brunson.”
“We held additional talks with Turkish officials. The conversations continue,” State Department spokeswoman Heather Nauert said in a statement.
The meeting comes just a week after the U.S. imposed sanctions on Turkey’s justice and interior ministers. In retaliation, Turkish President Reccip said he had ordered authorities to "freeze the assets of America’s justice and interior ministers in Turkey, if there are any," the Associated Press reported.
In July, the U.S. Senate passed a bill that restricts Turkey’s access to financing from international financial institutions.
“At the very least, a more difficult external financing environment would probably result in further falls in the lira and increases the risk that Turkey plunges into a full-blown economic crisis,” London-based consultancy Capital Economics said in a research note.
Turkey's exports to the U.S. are currently valued at $9.4 billion, according to the U.S. Census Bureau.
Write to Reem Abdellatif at reem.a@argaam.com
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