White House says Turkish sanctions 'regrettable'

John Bolton speaks during the daily press briefing at the White House Aug. 2 2018 in Washington

The currency lost almost 40 percent against the dollar this year, driven by worries over President Erdogan's growing influence on the economy and his repeated calls for lower interest rates despite high inflation. Erdogan accused the United States of conspiring against Turkey and said that the slide in its currency doesn't make any sense logically.

MSCI's emerging market currency index.MIEM00000CUS hit its lowest level since May 2017 on Wednesday as many major emerging currencies extended their selloff in the wake of Turkey's currency crisis.

US President Donald Trump widened the diplomatic rift with a tweet that announced an increase of tariffs on steel and aluminium and that said "our relations with Turkey are not good at this time".

Washington warned more economic pressures may be in store for Turkey if it refuses to release Brunson, a White House official said on Tuesday.

The United States sanctioned Justice Minister Abdulhamit Gul and Interior Minister Suleyman Soylu, blaming both for being involved Brunson's arrest and detention. On Aug. 15, a Turkish court in the Aegean province of Izmir, where Brunson is on trial, rejected the pastor's appeal to be released from house arrest.

"(President Erdogan) is not acting like much of an ally, and he hasn't acted like much of an ally for some period of time", Ambassador-at-Large for International Religious Freedom Sam Brownback said. Asked what the USA would view as progress in resolving the dispute, she replied, "Progress is having Pastor Brunson on a plane, coming back to the United States".

Also helping was Turkey's decision to release two Greek soldiers from prison on Tuesday, increasing prospects for improved relations with the European Union.

There are a lot of foreign currency loans in Turkey's banking system and therefore a risk that the collapse in the lira could cause a wave of loan defaults.

The lira is still down 20 per cent in August and many investors will wait for steep interest-rate hikes from the central bank before they return, especially with inflation at a 15-year high of nearly 16 per cent and climbing. Bonds fell, pushing the yield on 10-year notes up nine basis points to 21.46 per cent.

Markets rattled as Turkish lira dives to record lows
In the interview with Hurriyet newspaper, Albayrak described the lira's weakness as "an attack" - echoing Erdogan, who is his father-in-law.


"So now you have economic data warranting the Fed rate hiking cycle and expectations for other central banks pushed out a little bit", said Tomes.

The lira TRYTOM=D3, which has weakened 34 percent against the dollar this year, firmed to 5.7500 against the dollar by 0722 GMT from a close of 5.95.

"When the dollar turned in the second quarter we had a really weak EM market", Said Haidar, founder and chief investment officer, at NY hedge fund Haidar Capital Management, said.

Turkey's Capital Markets Board (SPK) later said it reduced leverage ratios until September 3 on new positions in foreign exchange markets to avoid fluctuations.

Moves by the central bank to ensure Turkish banks have liquidity and a planned conference call by Turkish Finance Minister Berat Albayrak, who is Erdogan's son-in-law, on Thursday have gone some way to reassuring investors.

The chief executive of Turkey's Akbank said the banking sector remained strong and the measures taken to support the market had started to have an impact, adding there was no withdrawal of deposits.

A decree by Erdogan doubled Turkish tariffs on imports of USA passenger cars to 120 percent, alcoholic drinks to 140 percent and leaf tobacco to 60 percent.

Turkey has doubled tariffs on some USA imports, such as passenger cars, alcohol and tobacco, in what its vice president said was a response to deliberate United States attacks on the Turkish economy.

Pekcan said, according to the report, "the United States is an important trading partner, but it is not our only partner". Turkey's exports to the United States a year ago amounted to $8.7-billion, making it Turkey's fifth-largest export market.

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