Turkey's partnership with United States in jeopardy, Erdogan warns

Greek lieutenant Aggelos Mitretodis and noncommissioned officer Dimitros Kouklatzis were arrested in Turkey

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A financial shockwave ripped through Turkey on Friday as its currency nosedived on concerns about its economic policies and a dispute with the USA, which President Donald Trump stoked further with a promise to double tariffs on the North Atlantic Treaty Organisation ally.

The lira has always been falling on worries about Mr Erdogan's influence over monetary policy and worsening relations with the United States.

Mr Erdogan also wrote in the New York Times that unless the U.S. changed course, Turkey would look for new friends and allies.

The situation was compounded on Friday when US President Donald Trump tweeted that he had authorised a doubling of tariffs on steel and aluminium.

High-level meetings in Washington between USA and Turkish officials over Brunson ended this week, apparently without a resolution.

So, to hike tariffs on Turkey, Trump needed a reason why maintaining America's domestic metal industry required imposing even steeper tariffs on Turkish exports than were already in place. The U.S. recently hit two high-ranking Turkish officials with sanctions after the Turkish government refused to release imprisoned Christian pastor Andrew Brunson.

The central bank raised interest rates to support the lira in an emergency move in May, but it did not tighten at its last meeting.

All decisions about the way forward rest with Erdogan, and thus far, he seems undaunted.

The president's characteristic defiance in the face of a shaky economy has further unnerved investors.

"Change the euros, the dollars and the gold that you are keeping beneath your pillows into lira at our banks".

Paul Greer at Fidelity International said dramatic interventions were now needed as Turkey faced a "downward spiral" of investor confidence. "This will be my nation's response to those who have declared an economic war", Erdogan said during the rally.

"The dollar can not block our path. Look at what we were 16 years ago and look at us now", Erdogan told supporters.

After winning a June election with revamped powers, Erdogan tightened his control over the central bank and appointed his son-in-law Berat Albayrak to head a newly-empowered finance ministry.

In the New York Times article, Erdogan said: "Attempting to force my government to intervene in the judicial process is not in line with our Constitution or our shared democratic values".

Marcus Chenevix, Middle East analyst at TS Lombard said that Turkey's economy is fragile.

Turkey's sovereign dollar-denominated bonds tumbled with many issues trading at record lows.

In a tweet, Trump cited the decline in Turkish currency as justification for increasing tariffs to 50 percent on Turkish steel and 20 percent on Turkish aluminum.

The lira's plummeting value, the potential for debt defaults, the possibility of a balance-of-payments crisis and rising inflation all represent clouds gathering ahead of an economic storm that could batter the country.

This did nothing to revive the currency.

"It's very unfortunate that the Trump administration had to retaliate against Turkey for their continued refusal to release Pastor Brunson and other Americans being held in Turkish custody", Graham said.

But Erdogan said Turks should not be alarmed by exchange rate movements.

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