With US sanctions and tariffs hitting Turkey this month for its refusal to release an American pastor, the relationship between the two North Atlantic Treaty Organisation allies is crumbling amid fears on the regional impact.
President Trump ordered a doubling of US tariffs on steel and aluminum imports from Turkey Friday, escalating a diplomatic spat with a key North Atlantic Treaty Organisation ally. The lira slid to a fresh record low against the US dollar.
The United States has increasingly used economic sanctions against foes such as Iran or North Korea but it is highly unusual for an administration to impose import tariffs over political or judicial issues with other countries.
In his tweet about the new tariffs, Trump said "Our relations with Turkey are not good at this time!".
Putting a 50 percent tariff on a foreign country's steel exports isn't the most conventional way to secure an imprisoned American's relief.
President Donald Trump announced Friday that he plans to double steel and aluminum tariffs on Turkey - prompting the lira to plunge 20 percent - amid heightened tensions between the two North Atlantic Treaty Organisation allies.
Erdogan on Friday once again urged Turks to exchange gold and dollars into lira to stop the currency from plunging.
Turkish President Tayyip Erdogan told a rally Friday that his country would not yield to what he called bullying and blackmail.
However with president Erdogan now pursuing the growth policy which got him re-elected, he favours keeping rates low to stoke domestic growth. Hesse said that European banks could suffer losses if they loaned money in Turkey or owned Turkish banks but that the possible losses were not large enough to trigger a eurozone banking crisis.
The collision results from inflexibility over two policies, the first being Erdogan's firm belief (against conventional economic theory) that high interest rates cause, rather than curb, inflation.
Erdogan, a self-described "enemy of interest rates", wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing. Rate increases are the central bank's main tool to support the currency and fight inflation.
Last week, the United States imposed sanctions on Turkey's justice minister and interior minister for not releasing pastor Andrew Brunson. The currency is down about 40 percent so far this year.
Turkey's currency has nosedived amid concerns about the country's economic policies and its dispute with the US. A Russian government statement said the two discussed economic and trade ties, including the success of several joint projects. The central bank, officially independent, appears to have heeded Erdogan and has not raised rates when many - including the International Monetary Fund - said it should have.
High-level meetings in Washington between US and Turkish officials over Brunson ended this week, apparently without a resolution.
"Don't forget, if they have their dollars, we have our people, our God", he said.
It is a Coen brothers-level farce the people of Turkey and every other emerging market that's been caught up in what's now a broader currency sell-off are not laughing at.
The defiant tone and war rhetoric only hurt the lira more, before Erdogan's finance chief and son-in-law, Berat Albayrak, tried to ease investor concerns during a conference, saying the government would safeguard the independence of the central bank.