Turkey says Trump tariff move will harm ties, vows retaliation

Economic turmoil hits Turkey, US bank stocks react

Trump doubles steel & aluminum tariffs on Turkey

Together, that can weigh on the currency.

According to the Capital Economics consultancy, the plunge in the lira risks putting further pressure on the banking sector in Turkey due to the scale of the credit boom and one third of bank lending being denominated in foreign currencies. To do that, they have to sell lira - worsening the rout.

The slump is attributed to the tensions with the USA and concerns about President Recep Tayyip Erdogan's control of monetary policy. That move would collide with Erdogan's beliefs that see him consistently slamming interest rate hikes. The predictable result is this has made inflation get out of control - it is up to 15.9 percent when they are supposedly trying to keep it to 5 percent - because the central bank has been so slow to raise rates, and, in fact, refused to do so at its most recent meeting.

On Friday afternoon Erdogan dug in again, calling for citizens to convert out of dollars and gold and buy the lira to help fight a "national struggle". That drained investor confidence in the central bank, leading to a further sell-off of the currency. Erdogan has promised a new economic model driven by Albayrak, who is also his son-in-law.

In an opinion piece in the New York Times, he warned the US that Ankara had other alternatives as allies. The sanctions are sending a loud and clear message to the North Atlantic Treaty Organisation alliance, which President Trump routinely speaks out against.

Earlier on Friday, Trump ramped up his attack on Turkey by doubling U.S. tariffs on Turkish aluminium and steel imports to 20 percent and 50 percent, respectively.

The tariff for steel imported from Turkey will now be 50 percent.

All decisions about the way forward rest with Erdogan, and thus far, he seems undaunted.

The Dow Jones Industrial Average had lost more than 270 points by 2:45 p.m. Friday, a 1 percent loss, while falling bank stocks dragged the S&P 500 index down roughly 0.9 percent.

Turkey's sovereign dollar-denominated bonds tumbled with many issues trading at record lows. So the sudden fall raises the possibility of corporate bankruptcies or bank failures that could hurt the economy.

"The price of the food that I buy increases day by day, the fuel that I put in my auto to distribute lunches is more expensive, but I can not raise my prices from one day to the next, " she said. "Look at what we were 16 years ago and look at us now".

Q: What impact could the turmoil have outside Turkey?

An important emerging market, Turkey borders Iran, Iraq and Syria and has been mostly pro-Western for decades. Any resumption of serious migrant flows from Turkey would be a big political issue in Europe, where opposition to immigration has fueled the rise of right-wing parties such as Itay's League and the Alternative for Germany.

Secondly, Turkey has a huge problem with spiralling inflation, which now stands at 16pc year-on-year by official estimates even before the latest episode of Lira weakness.

"The Turkish people expected the United States to unequivocally condemn the attack and express solidarity with Turkey's elected leadership".

Q: What is Erdogan proposing to do?

He is clearly angry that the U.S. has not taken more action against the Gulenist movement and what he said was a failure "to unequivocally condemn" the 2016 coup attempt.

U.S. investment bank Goldman Sachs alarmed investors with an assessment that a further drop in the lira to 7.1 to the dollar "could largely erode" the excess capital of Turkish banks.

"This is a national, domestic battle". The Central Bank's independence should always continue as a principle.

"Whilst these three banks are likely secure enough to survive a major write-down in the region it does little to improve their earnings outlook over the short term and this is being reflected in the market's repricing today".

McHugh reported from Frankfurt, Germany.

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