What's behind the current US-Turkey spat?

Turkey’s President Recep Tayyip Erdogan is showing no signs of backing down in a standoff with the US that rattled markets. — Reuters pic

Turkey’s President Recep Tayyip Erdogan is showing no signs of backing down in a standoff with the US that rattled markets. — Reuters pic

Echoing his father-in-law, President Recep Tayyip Erdogan, whose policies and rhetoric have hurt confidence in the Turkish market, Albayrak called the lira's weakness an "attack".

Turkey and the US are now experiencing rocky relations following Washington's imposition of sanctions on Interior Minister Suleyman Soylu and Justice Minister Abdulhamit Gul for not releasing American Pastor Andrew Brunson, who faces terrorism charges in Turkey.

USA stocks dropped on Monday as global jitters due to Turkey's plummeting currency spread to Wall Street.

The fall out has showed no signs of abating as United States president Donald Trump approved doubling tariffs on Turkish steel and aluminum while Mr Erdogan has vowed to retaliate.

On Monday, the currency dropped to a historic low of 7.2 lira against the dollar before recovering slightly to 6.8 against the greenback.

The lira also lost nearly 10 percent on Monday, but concerns about it eased in Asian markets on Tuesday.

Turkey's President, Recep Tayyip Erdogan, said on Monday that the USA was seeking to "stab it in the back". "This is called carrying out an operation against Turkey", he said.

The first warning sign trouble could be afoot came when Trump said on July 26 Turkey would be facing sanctions over its holding for nearly two years of United States pastor Andrew Brunson on terror-related charges. "With God's permission we will overcome this", Erdogan asserted while again rejecting pressure to raise interest rates to make the lira more attractive. "When we have so many experienced people, leaving the entire economy to the son-in-law created insecurity", he added, referring to Mr Erdogan's decision to name his daughter's 40-year-old husband Berat Albayrak as minister of a newly combined treasury and finance ministry on July 9.

"Turkey's a very big country, but we can't fight with everyone in the worldwide arena", he said.

"Some close the doors and some others open new ones", added Erdogan, who has built closer ties over the last years with countries from Latin America, Africa to Asia.

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Additionally, Turkey has a vast amount of debt denominated in U.S. dollars.

His comments followed US President Donald Trump's announcement that he would be imposing a 20 per cent duty on aluminum and 50 per cent one on steel imported from Turkey.

"You dare to sacrifice 81-million Turkey for a priest who is linked to terror groups?"

Erdogan appeared to indicate that the entire alliance between Turkey - which joined North Atlantic Treaty Organisation in 1952 with strong American backing - and Washington was at stake.

In Trabzon, Erdogan confirmed media reports that Washington gave Onal's delegation a deadline for the release of Brunson. The two governments have been arguing bitterly over Turkey's prosecution of Andrew Brunson, a pastor from North Carolina accused by the Turkish authorities of terrorism-related charges.

Erdogan has repeated calls for Turks to sell dollars and buy lira to shore up the currency, while also telling business owners not to stock up on dollars.

Investors are anxious about a confluence of factors: the country's reliance on foreign loans that may stop flowing in as interest rates rise in other economies, like the U.S.; Erdogan's insistence that the central bank not raise interest rates, as most independent analysts say it should; and a spat with the U.S. that has led to sanctions and the fear of greater isolation from longtime allies in the West.

Erdogan had on Saturday described interest rates as a "tool of exploitation", in remarks that may not be warmly welcomed by the markets.

Turkey's relations with United States and Germany have been strained by its decision to arrest several citizens from both countries.

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