Turkish Lira Plummets; Erdogan Pledges Economic War

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The Turkish lira hit a record low on August 10 after President Donald Trump authorized the doubling of tariffs on imports of Turkey's steel and aluminum.

Mr Trump said tariffs on aluminium imports would be increased to 20% and the tariff on steel imports will be raised to 50% as the Turkish Lira "slides rapidly downward against our very strong Dollar!".

Turkish President Recep Tayyip Erdogan warned the USA on Saturday that Turkey does not respond to threats, a day after President Donald Trump announced he would double the rate of tariffs on Turkish metals.

In fact, political tensions between the United States and Turkey have been on the rise as of late amidst the unresolved situation around USA pastor Brunson and recently U.S. sanctions on two Turkish officials.

Addressing for the first time on Friday to a rally of his supporters, he said, "If they have dollars, we have our people, we have our right and we have Allah!" "The tweet is mightier than the Turkish sword", Cristian Maggio, head of emerging markets strategy at TD Securities, said in a note to clients, with reference to Trump's comments.

"Those who can't compete with us on the ground have brought online fictional currency plots that have nothing to with the realities of our country, production and real economy", Erdogan told a provincial meeting of his AK Party in the Black Sea coastal town of Rize. He urged Turkish citizens to immediately exchange their gold and dollars for lira.

Even before Trump's announcement, President Tayyip Erdogan told Turks to exchange gold and dollars for lira in order to fight "an economic war". That caused a further drop in the lira.

While the lira's plunge could drag down the Turkish economy, the impact on euro zone banks in general is seen as modest, economists said.

After winning a June election with revamped powers, Erdogan tightened his control over the central bank and appointed his son-in-law Berat Albayrak to head a newly-empowered finance ministry. According to figures from the Turkish Government, for the period of 2002 to October 2017, Turkish direct investments in the United States reached $3.7 billion while US investments in Turkey amounted to $11.1 billion, second only to the Netherlands' 21.6 billion. Following the tweet, Turkey responded by imposing duties on $1.8 billion in USA goods including coal and paper.

In the first three months of 2018, Turkish steel exports to the United States fell almost 50 percent over the same period in 2017, making it the only top-10 source of US steel imports to see a decrease, according to the US Commerce Department.

Without naming any country, Erdogan said that those - who stand against Turkey for the sake of small calculations - would pay the price.

-Turkish relationship, a deterioration made worse by Turkey's worsening human rights record and increased cooperation with Russian Federation and Iran in Syria.

Erdogan framed Turkey's currency crisis as a "national battle" against economic enemies, namely the USA, saying "if they have their dollar, we have the people, we have Allah".

Turkey's President Recep Tayyip Erdogan addresses his supporters in Bayburt, Turkey, Friday, Aug. 10, 2018. Turkish aluminum will now be taxed at 50% and steel at 20%, essentially pricing Turkish metals out of the USA markets.

He also blamed those seeking higher interest rates to help cope with the lira's record losses as being behind the country's economic misfortunes. The Treasury Department announced fresh sanctions on two Turkish government officials in response to Turkey's refusal to let Brunson go. Overnight it had retreated to its lowest since November 2016 on threats of new USA sanctions, weakening beyond the psychologically important 65-per-dollar threshold. Hard currency debt issued by Turkish banks suffered similar falls.

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