Turkish president Recep Tayyip Erdogan’s popularity is closely tied to the country’s economic prosperity.
But the lira has dramatically tumbled since last Friday after the US imposed sanctions and additional tariffs to force Turkey to release Pastor Andrew Brunson, who is a US citizen detained in Turkey on flimsy terrorist charges.
According to a graph on Xe.com, the lira when compared against the euro – as of August 7, 9.00 BST – was above 0.164.
But as of August 14, the lira stands at 1.33 after a low of 0.12 as of yesterday.
The Turkish lira jumped more than 6 percent to 6.4609 per dollar as of 10:08 am in Istanbul.
The yield on 10-year government bonds fell 123 basis points to 21.46 percent.
Government bonds rallied and the lira surged from local retail accounts sold dollars to take profit after the currency slid almost 30 percent against the greenback over the past month.
Retail accounts sold an estimated $50 million to $60 million of foreign exchange on Tuesday, a source told Bloomberg.
On Monday the lira briefly shot past seven to the dollar in early Asian trading, before recovering after Turkey’s central bank announced liquidity support measures.
Erdogan has not backed down over the rift with the US and has used the ensuing crisis to his advantage by blaming it on a foreign conspiracy, telling party members in the city of Trabzon on Sunday: “The aim of the operation is to make Turkey surrender in all areas from finance to politics. We are once again facing a political, underhand plot.”
But as European markets opened on Monday, the lira dropped again to 6.90 against the dollar and 7.80 against the euro as fears of contagion spread.
Donald Trump doubled import duties on steel and aluminium as part of fresh sanctions on the country last Friday.
He tweeted: “I have just authorised a doubling of Tariffs on Steel and Aluminium with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar!
“Aluminium will now be 20 percent and Steel 50 percent. Our relations with Turkey are not good at this time!”
The currency dropped to a 13-month low as tariffs hit.
It has been a concern that the lira will affect European banks, mainly Spanish and French, because of the exposure of major European lenders to Turkish debt.
In France and Spain, major lenders are at risk of losing substantial paybacks.
However, Elsa Lignos, Managing Director of FX Strategy, claimed the crash could still be judged as an isolated incident unlikely to cause a wider recession.
She told Sky News: “If you look at the case of Turkey, real interest rates are actually fairly positive given how high inflation is at the moment.
“So it’s not clear that investors are being rewarded for the risk that they’re taking.”