Recep Tayyip Erdogan tells Turkey to 'trust in God' as lira falls

Lira's value has dropped amid growing concerns about Mr Erdogan's expanding powers

A plunge in the Turkish lira rocked global equities and emerging markets on Friday, and fears of more turmoil sent investors scurrying for safety in assets like the yen and US government bonds.

The Turkish lira has fallen to a new record-low this morning, as much as 12 per cent in one day, amid the souring of diplomatic relations with the U.S. and a deepening monetary policy crisis.

It is the assumption that this rate rise is coming that has kept the Euro exchange rate complex relatively supported over recent months.

The currency, which had already fallen 40 per cent, has suffered its most dramatic day so far this year, falling as low as 6.30 lira per dollar at one point.

The Turkish Lira and Russian Ruble are struggling after both countries were recently hit by fresh United States sanctions.

"Having said that, what's happening in emerging markets is leading to risk-free rates being bid for and that includes Treasuries, Bunds and gilts".

The added weakness in Turkish currency - that has seen it plunge a further 10% - comes as disappointment set in after talks between Turkish and U.S. diplomats in Washington failed to result in a compromise that was likely to ease sanctions.

As investors piled into "safe" bonds, German yields hit three-week lows and yields on USA 10-year Treasuries fell to 2.8913 percent. "The fresh negative round of news started when the central bank decided not to hike the interest rates at its monetary policy meeting on 24 July - a big disappointment as the weak TRY increases inflation, which in turns weakens the lira and creates a vicious circle".

He added that investors were becoming increasingly anxious about rising inflation in Turkey and the ability of the country's central bank - whose independence has been questioned by investors - to do anything about it. "Don't forget this: if they have got dollars, we have got our people, our right, our Allah", he was cited as saying.

In commodities, USA crude oil CLc1 fell 0.5 percent to $66.51 a barrel, while Brent crude LCOc1 was 0.4 percent lower at $71.77 per barrel.

Despite the broader flight to safe havens, gold was lower.

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