Turkey lira crashes to new lows as market alarm grows

Turkey's embattled lira today hit new record lows against the US dollar and euro, losing over seven percent in value as strains with the United States showed no sign of abating and fears grew over the exposure of European banks.

The lira was trading at 5.95 to the dollar, a loss on the day of 7.5 percent. Earlier, it had crashed some 12 percent through the 6.00 level for the first time in history, trading at one point at more than 6.20 lira per dollar.

The lira has now lost over a third of its value against both the dollar and the euro this year, with the currency battered by both concerns over domestic economic policy and the political situation.

Versus the euro on Friday the lira lost 7.0 percent to trade at 6.8.

But President Recep Tayyip Erdogan, who had remained unusually silent all week as the lira bled value almost daily, appeared to express confidence over the situation.

"We will not lose the economic war," state-run TRT Haber television quoted Erdogan.

The state-run Anadolu news agency also quoted Erdogan as saying that Turkey would be able to overcome the situation just like flooding this week in the Black Sea province of Ordu.

"God willing we will overcome these disasters (the Ordu floods) and also we will be successful in the economic war," he said.

Erdogan had in comments late Thursday raised eyebrows by appearing to play down the magnitude of the crisis, saying: "If they have dollars, we have our people, we have our right and we have Allah!" he said.

Turkey remains at loggerheads with the United States in one of the worst spats between the two NATO allies in years over the detention for the last two years of American pastor Andrew Brunson and a host of other issues.

Talks this week in Washington failed to resolve the impasse which has led both sides to slap sanctions on senior officials amid fears of graver measures to come.

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

UBS chief economist for EMEA emerging markets Gyorgy Kovacs said a giant rate hike of 350-400 basis points would be "consistent with real rate levels that in the past helped to stabilise the currency."