On Friday morning, the Turkish lira plunged by over 20% against t🧜he U.S. dollar, into record low territory, extending the currency’s spiraling decline of the past several years. The fall of the lira has accelerateღd dramatically in 2018, but Friday’s one-day collapse far eclipsed any previous slide.

Below is a daily chart of the U.S. dollar against the Turkish lira spanning a time frame of one year. Becauseജ the dollar is the first, or base, currency in the USD/TRY currency pair, the sharp rise on the chart illustrates the dramatic weakening of the lira against the dollar.

Source: TradingView

Severe economic and geopolitical troubles that have continued to plagu♛e Turkey combined on Friday to cause the exceptionally sharp currency moves.

U.S.-Turkey Relations

Consistently deteriorating relations between the U.S. and 🔯Turkey over recent years have risen to alarming levels, dealing a severe blow to bo🐭th Turkey’s economy and its currency.

Just last week, Washington announced new sanctions on Turkish officials in response to the detention of an American pastor accused of supporting a 2016 failed coup against Turkish President Recep 𒉰Tayyip Erdogan🐬.

Then, on Friday, just as the Turkish lira was in a state of free fa📖ll, U.S. President Donald Trump helped exacerbate Turkey’s problems by announcing dramatically increased tariffs on metal imports from Turkey.

Trump tweeted:

I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!

— Donald J. Trump (@realDonaldTrump)

The tweet served to place intensified pressure on the plummeting lira, despite President Erdogan’s attempts t𝔍o limit the damage.

Rising Inflation, Low Interest Rates

Concerns about rapidly rising 澳洲幸运5官方开奖结果体彩网:inflation in Turkey – above 15% year-over-year in July – have not been addr🌺essed by corresponding hikes in interest rates by the country’s central bank. President Erdogan has pressured the central bank to maintain low interest rates by refraining from implementing much-needed h𒁃ikes. An artificially low interest rate environment has contributed to additional ongoing pressures on the Turkish lira.

Potential Turkish Debt Crisis

Turkey’s massive debt obligation to other countries is evident in the extraordinarily large percentage of its debt that is denominated in foreign currencies. As the lira continues to weaken, this foreign debt becomes increasingly difficult and expensive for Turkey to manage, which should further exacerbate the currency’s decline. A looming debt crisis that potentially involves a Turkish request for assistance or a bailout from the International M🔥onetary Fund could have significant European and global economic repercussions. Turkey’s exceptionally large current account deficit makes the country’s potential to fall into a severe debt crisis even greater. That said, the global threat from Turkey's debt problems is relatively small. According to the  global exposure to Turkish loans is $2ꦯ65 billion, or less than 1% of the worldwide total. Still, a Turkish debt crisis could set off unknown consequences throughout the already volatile region.

No Solution in Sight

President Erdogan tried to stem currency losses on Friday by urging Turkish citizens to fight the economic war against other countries and use foreign currenc༺ies and gold to buy lira. This attempt to generate national fervor in defense of the Turkish currency, however, was not immediately successful. The lira remained heavily pressured against the U.S. dollar well into Friday afternoon.

Aside from the impact a potential Turkish debt crisis may have on European markets and financial institutions, which could have a rippling effect on other global markets, the falling lira also matters because it helps to further depress an already-weakened euro an𝔍d further strengthen the U.S. dollar, which has been rising sharply for much of this year.

As President Erdogan continues to exert an iron grip on the government, economy, and people of Turkey, and the specter of a Turkish debt crisis continues to loom, 💦the country’s economy and currency are apt to remain under heavy pressure.