Turkey's Erdogan Threatens Boycott of US Goods

Matt Dunham – WPA Pool  Getty Images Turkish President Tayyip Erdogan

Matt Dunham – WPA Pool Getty Images Turkish President Tayyip Erdogan

Turkey's currency crisis sent world markets reeling as investors in emerging markets sought safety in government bonds and the dollar. It had already fallen more than 40% in the past year.

The United States slapped financial sanctions on two Turkish ministers and doubled steel and aluminum tariffs on Turkey over his continued detention.

The dire state of Turkey's economy may be a outcome of a diplomatic misunderstanding between the country's president and Donald Trump.

The interior ministry says it is launching the investigation to hush dissent amid the country's economic crisis. There is no economic reason ... "This is called carrying out an operation against Turkey".

Turkey's president, Recep Tayyip Erdoğan, is opposed to raising interest rates to cool down the economy and support the currency, and has used his recent election victory to impose his unorthodox views on the country's central bank.

"I am specifically addressing our manufacturers: Do not rush to the banks to buy dollars".

Separately, Russian Foreign Minister Sergey Lavrov, on an official visit to Ankara, said the increased United States tariffs and sanctions imposed by Washington are "based on the desire to dominate everywhere in everything, to control worldwide affairs and to achieve unilateral advantages on global markets".

Speculators, sensing an opportunity to make a quick profit, have piled into the market, "shorting" the lira and the Turkish stock market, that is, betting that they will fall further.

The lira started to stage a recovery on Tuesday following its dramatic two-day collapse. If anything, the drop in the lira is making us a lot more money right now, so we're not anxious about it at all!”.

Turkey's strained relationship with the United States has reached a low point with the Brunson affair. The Trump administration has been demanding that Turkish authorities free an American pastor who was arrested back in 2016 over charges he tried to overthrow Erdogan's government.

Several Injured as Car Crashes Into Barriers Outside Parliament in London
A forensics officers prepares to examine the scene near a vehicle that crashed into security barriers outside the Houses of Parli. It is believed the driver was alone and had no accomplices and police stated that there were no more threats against the public.

Trump's decision to double U.S. tariffs on Turkish steel and aluminium has only exacerbated the situation.

What are Turkish officials doing about the lira?

The Turkish leader had already said the US risks pushing a key North Atlantic Treaty Organisation member to seek allies elsewhere.

None of this looks remotely sufficient to deal with the scale of the crisis, particularly given the paucity of Turkey's foreign currency and gold reserves - which are often used by central banks to fight off currency speculators.

But the bank did not increase interest rates, which would help contain inflation while supporting the lira. The president is famously averse to interest rate rises.

Why is there so much fear of contagion?

Erdogan has said that he thinks the lira would stabilize, but investors are not convinced. This difference between import and export of goods and services has been filled through external borrowing in foreign currency. BBVA is the second-largest private bank in Spain.

The Post Office said sales of lira in the past week were three times higher than a year ago. Markets worry the sell-off, which shows little to no signs of slowing, could spill over to other countries.

The downdraft for emerging market currencies stopped, with the South African rand ZAR=, Russian ruble RUB= and Mexican peso MXN=, a proxy for emerging market currencies, all rising.

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