Turkey's floundering economy exacerbated by Trump tariffs

Euro vs US Dollar Chart- 5min

U.S. President Donald Trump said he's authorized doubling some metals tariffs on Turkey, citing poor relations with the North Atlantic Treaty Organisation ally amid an escalating conflict over its detention of an American pastor.

Washington in response sanctioned two Turkish ministers, and Trump on Friday tweeted it was doubling tariffs on steel and aluminium imports from Turkey, adding that relations with Ankara were "not good at this time". Trump's tweet Friday showed that in many cases, the political and economic factors overlap - Trump's decision to double sanctions on Turkey was made possible by a key trade law called Section 232 that gives the US president very broad powers over tariffs in cases of national security.

President Tayyip Erdogan denied on Saturday that Turkey is in a currency crisis, dismissing a plunge in the lira as "fluctuations" unrelated to the country's economic fundamentals.

Turkey is at loggerheads with the U.S. in one of the worst spats in years over the almost two-year detention of American pastor Andrew Brunson and a host of other issues.

Trump's "jubilation in inflicting economic hardship on its North Atlantic Treaty Organisation ally Turkey is shameful", he wrote.

"Before it is too late, Washington must give up the misguided notion that our relationship can be asymmetrical and come to terms with the fact that Turkey has alternatives", he said.

"If you have dollars, euros or gold under your pillow, go to banks to exchange them for Turkish lira", he said on national television.

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On Friday, they also had to also factor in Turkey's economic crisis. "Our relations with Turkey are not good at this time!"

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

Trump's announcement saw the Turkish lira drop even further, crashing to a 19 percent daily loss against the greenback.

Erdogan has been putting pressure on the central bank to not raise interest rates in order to keep fueling economic growth.

Brunson, an evangelical Presbyterian from North Carolina, was jailed for allegedly supporting a group that Turkey blames for the failed coup.

Erdogan called on Turks to not be concerned about exchange rate movements, mockingly declaring "the dollar, the mollar will not cut our path".

The currency's drop - 41 per cent so far this year - is a gauge of fear over a country coming to terms with years of high debt, worldwide concern over Erdogan's push to amass power, and a souring in relations with allies like the US.

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The single currency had retreated 0.7 percent overnight, its decline accelerating after the European Central Bank said that risks to global growth are increasing as the risk of protectionism and the threat of higher US tariffs sap confidence.

Erdogan's remarks come after pro-government Turkish lawyers submitted a petition for USA soldiers at Incirlik Air Base to be arrested, claiming they were connected to the Gulen movement, which Ankara claims was behind the failed coup attempt.

"Interest rates should be kept to a minimum because they are a tool of exploitation that makes the poor poorer and the rich richer", he said.

"The US and Turkey are breaking up". It is host to a critical part of the Western alliance's missile defence system against Iran.

Ivo Daalder, a former United States ambassador to North Atlantic Treaty Organisation and now president of the Chicago Council on Global Affairs think-tank, said Turkey could grind decision-making at Nato's headquarters in Brussels to a halt if the dispute with Trump got out of hand.

For the Kiwi Dollar, things were a little better, the Kiwi down just 0.06% to $0.6586, last week's beating providing some sympathy at the start of the week, with some minor data out of New Zealand in the early hours more upbeat than recent data, the services sector seeing a jump in activity in July, with food inflation also accelerating.

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