Turkish lira slides to record lows as a diplomatic dispute with Washington deepens

The Turkish lira fell to fresh record lows against the dollar on Monday, extending a collapse that accelerated late last week when the US announced it would double tariffs on Turkish steel and aluminium.

The dispute is linked to Turkey's detention of an American pastor, Andrew Brunson, and has escalated into the most serious crisis in relations between the two NATO allies in years. The currency has lost a large share of its value against the dollar since the start of the year. Economists point to deeper vulnerabilities behind the sell-off:

• High inflation and concern about the central bank's independence
• Large foreign currency debts held by Turkish companies
• A wide current account deficit that depends on foreign capital

Turkey's central bank took steps on Monday to support liquidity in the banking system, but did not raise interest rates, which many investors had called for. Government officials have described the pressure on the lira as an economic attack.

The effects have spread. Shares of European banks with exposure to Turkey fell, and other emerging market currencies, including the South African rand and Argentine peso, came under pressure.

For ordinary Turks, the result is rising prices for imported goods and fuel. For global investors, the episode is a reminder that a strong dollar and political tension can quickly expose weak spots in emerging economies.