Trump doubles tariffs on Turkish steel and aluminum, says relations 'not good'

Turkish US talks end at State Department

The sanctions target Turkey's minister of justice and minister of the interior, whom the White House said played leading roles in the arrest and detention of Brunson.

Hesse noted that business confidence in the eurozone did not suffer after Turkey's economy contracted in 2016 in the wake of a failed coup there.

Turkey's lira plunged as much as 14 percent on Friday as worries about President Tayyip Erdogan's influence over monetary policy and worsening USA relations snowballed into a market panic that also hit shares of European banks.

The lira, which has been losing ground in recent days in part due to the USA tensions, plunged as much as 20 percent on Friday to record low levels against the dollar.

At 9:20 am Eastern time, Turkey's lira was trading at 6.5 to the USA dollar, or less than a third of what the currency was worth in 2014.

"I would say we would define progress as Pastor Brunson being brought home", Nauert said.

"If you have dollars, euros or gold under your pillow, go to banks to exchange them for Turkish lira". In his speech in the northeastern city of Bayburt, Erdogan added that he would decisively defend the country against economic attacks.

He appeared to blame foreigners for trying to hurt Turkey, saying: "This will be my people's response against those waging an economic war against us".

Turkey's dollar bonds tumbled some 2 cents to trade at fresh record lows while the premium demanded by investors to hold the country's bonds over safe haven US Treasuries hit the widest since 2009.

Turkey has vowed to retaliate, but its currency has steadily weakened in recent months, removing some of the bite of the tariffs by making Turkish goods cheaper for USA consumers.

High level meetings in Washington between US and Turkish officials over a detained American pastor ended this week without an apparent resolution.

Meanwhile, markets are deeply concerned over the direction of economic policy under Erdogan with inflation almost 16 percent but the central bank reluctant to raise rates in response.

Erdogan, a self-described "enemy of interest rates", wants banks to lend cheap credit to fuel growth, but investors fear the economy is overheating and could be due for a hard landing. Markets are deeply concerned over the direction of economic policy in Turkey where inflation has hit almost 16 percent while the central bank remains reluctant to raise rates in response.

The central bank raised interest rates to support the lira in an emergency move in May, but it did not tighten at its last meeting.

Erdogan's son-in-law - acknowledged that the central bank's independence was critical for the economy, promising stronger budget discipline and a priority on structural reforms. "Don't heed them", Erdogan said Thursday.

The new set of economic steps are aimed at securing an economic growth of 3-4 percent in 2019, and decreasing the inflation rate to single digits, the ministry said in a press release on August 9.

Turkish companies have borrowed roughly US$300 billion in foreign currency, and now have to repay it in devalued Turkish lira.

Coupled with an inflation rate of almost 16 percent, that could cause a lot of damage to the local economy.

Foreign investors could be spooked and try to pull their money out, reinforcing the currency drop and potentially leading to financial instability.

"The plunge in the lira which began in May now looks certain to push the Turkish economy into recession and it may well trigger a banking crisis", said Andrew Kenningham, chief global economist at Capital Economics.

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