Turkey's currency nosedives on economic concerns, U.S. dispute

Erdogan says attempts to exert economic pressure on Turkey futile

The Turkish lira nosedived again following concerns about the country's economic policies and sanctions from the U.S. Banks are falling along with interest rates.

The currency's drop - 40 percent so far this year - has become a gauge of fear over a country facing the fallout of years of debt-fueled growth, worldwide concern over President Recep Tayyip Erdogan's push to amass power, and a souring in relations with allies like the U.S.

Turkey's embattled lira on Friday hit new record lows against the USA dollar and euro, losing over seven percent in value as strains with the United States showed no sign of abating and fears grew over the exposure of European banks.

He said Turkey was not afraid of "threats" and added Turkey had "alternatives" for economic cooperation in many places "from Iran, to Russian Federation, to China and some European countries". He claims higher rates lead to higher inflation - the opposite of what standard economic theory says. "There are various campaigns being carried out. Whatever they do, the market doesn't believe them", British economist Timothy ash of BlueBay Asset Management told CNBC.

'If they have their dollar, we have the people, we have Allah, ' he said.

Meanwhile emerging market borrowing costs continued to climb, with the average premium of emerging hard currency bonds over safe-haven US.

PRICES: The Labor Department said consumer prices climbed 2.9 percent in July compared with a year ago.

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New Finance Minister Berat Albayrak - Mr Erdogan's son-in-law -acknowledged that the central bank's independence was critical for the economy, promising stronger budget discipline and a priority on structural reforms.

Turkish companies have borrowed roughly US$300 billion in foreign currency, and now have to repay it in devalued Turkish lira.

Trump tweeted Friday that he authorized raising tariffs on Turkish steel to 50 percent and aluminum to 20 percent as the country's currency falls rapidly against the USA dollar.

Securing the release of Brunson, arrested in 2016, is a top priority for the United States, and it is also tussling with Turkey over the detention of three locally employed US embassy staff, trade issues and differences over Syria. Even though in its aftermath the Turkish economy shrank, eurozone confidence remained unchanged and credit growth even rose during the period. "They keep lagging behind the curve and the pace of the depreciation and the penalty that the market inflicts on Turkey when it sells off is increasing at a more than linear pace, nearly exponentially".

Heavy dollar buying interest from importers and banks also weighed on the trading front.

"Investors have been looking at the unfolding currency crisis in Turkey as a local difficulty, however the accelerating speed of the declines appears to be raising concerns about European banks exposure to the Turkish banking system", said Michael Hewson, chief market analyst at CMC Markets UK.

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