The Turkish lira cratered more than 20% on Friday after the US government announced it was doubling its tariffs on the countryâs steel and aluminum exports. The collapse in the lira sent shockwaves throughout global financial markets, prompting the European Central Bank (ECB) to warn major European banks about being exposed to the Turkish economy.
On Friday, President Donald Trump tweeted that he authorized an increase on US tariffs on Turkey’s steel and aluminum, which will now be 20% and 50%, respectively. The president appeared to celebrate the ârapidly downwardâ lira and championed âour very strong dollar!â on Twitter.
The Turkish foreign ministry promised that the government would retaliate against the US tariffs move.
The United States should know that the only result that such sanctions and pressure will bring… will be harming our relationship as allies.
For Turkey, the damage had already been done as the lira shed more than 20% of its value in a 24-hour period. The currency had already tumbled 40% over the last 12 months. Speaking to citizens, President Recep Tayyip Erdogan encouraged the public to exchange foreign currency and gold for lira, claiming that the country is entrenched in an âeconomic war.â
Turkish Treasury and Finance Minister Berat Albayrak later reaffirmed that monetary policy will remain independent, and that ensuring the central bankâs independence was paramount. Moving forward, the Turkish government will concentrate on tightening fiscal policy and reducing the current account deficit.
But the financial crisis was not contained in Turkey. The lira collapse sent jitters throughout international financial markets, especially in emerging markets. Over in the US, the Dow Jones fell 200 points, theÂ S&P 500 shed 20 points, andÂ theÂ NASDAQ slid 51 points. However, the greenback spiked on the news as the US Dollar Index, which measures the buck against a basket of currencies, surged 0.73% to 96.26.
The USD/TRY currency pair soared 15.66% to 6.4103, from an opening of 5.5467, at 21:26 GMT on Friday. The EUR/TRY advanced 14.18% to 7.3127, from an opening of 6.4016.
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