The Turkish lira reached a new record low, trading at 8 against the US dollar for the first time, after President Recep Tayyip Erdogan goaded European leaders and dared the US to hit Ankara with sanctions.
The currency fell past the symbolic threshold after Turkish markets opened on Monday at a time of high tensions between Turkey and its traditional allies. Its 1 per cent decline on Monday left the currency down by more than a quarter since the end of 2019. Turkish equities markets were also under pressure, with Istanbul’s Bist 100 index down 2 per cent.
The renewed tumult in the country’s asset markets followed a series of combative exchanges between senior Turkish officials and western counterparts over the weekend.
France recalled its ambassador to Ankara after Mr Erdogan said that Emmanuel Macron needed mental treatment in response to the French president’s controversial comments about Islam. Other senior Turkish officials also launched a series of strongly-worded attacks on Europe, comparing its treatment of Muslims to the demonisation of Jews in the 1920s.
That prompted a condemnation from Charles Michel, president of the European Council, who accused Turkey of resorting to “provocations, unilateral actions in the Mediterranean and now insults.” “It’s unacceptable,” he wrote on Twitter.
Mr Erdogan also dared the US to follow through on what he said were threats to impose sanctions on the country in relation to its role in the re-eruption of fighting in the disputed Caucasus region of Nagorno-Karabakh. Ankara has supplied weapons and offered strong political backing to the armed forces of Azerbaijan, which is battling Armenian soldiers in the region.
Washington has also repeatedly threatened to impose sanctions on Turkey, a Nato member, in retaliation for its purchase of a Russian-made S-400 air defence system.
“You don’t realise who you are dealing with,” Mr Erdogan warned the US in a speech on Sunday. “Whatever your sanctions are, don’t be late with them.”
Tensions between Turkey, the EU and the US have exacerbated more deep-rooted concerns about the management of the economy under the watch of Mr Erdogan.
The Turkish president has gained unprecedented control of the country’s institutions in recent years, including the nominally independent central bank.
The bank last week disappointed investors by defying hopes that it would raise its benchmark interest rate for a second time in a row — a move that analysts said could have helped to steady the embattled lira and help to rebuild investor confidence.
Instead, it resorted to what analysts dubbed “stealth tightening”, a decision that was widely interpreted as an effort to raise rates without incurring the wrath of Mr Erdogan, who is a longstanding opponent of high interest rates.