Turkish Lira plummet could have a knock-on effect on global markets

The Turkish Lira, which plunged 14 percent on Friday after US President Donald Trump announced he was doubling metals tariffs on Turkey, is in a "state of crisis" and could have a "knock-on” effect across other markets, according to an FXTM analyst.

"The Turkish Lira is in a state of crisis, as a result of investor confidence in Turkish assets remaining at alarmingly low levels," Jameel Ahmad, global head of currency strategy & market research, FXTM, said in a recent report.

"It is astonishing that no matter how punished the Lira looks, traders are showing absolutely no indication that they are finished with pricing in 'bad news' into the market," he added.

"EM was explained away generally as idiosyncratic -- it was about China, it was about Turkey, or Argentina or Venezuela.

But this is now clearly getting to a further level and the question is whether this becomes contagious now," Jurrien Timmer, director of global macro at Fidelity Investments, told Bloomberg.

In a tweet on Friday, Trump said: "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!"

In response to the tweet, Turkish President Recep Tayyip Erdogan called on his citizens to convert their dollars and other foreign currencies and gold holdings to Lira.

"Turkey was facing an 'economic war' and noted the country would respond to those countries who had started it," he said.

On Saturday, the president stated Turkey would seek new friends and allies to overcome the currency crisis after the Lira fell to its sharpest fall since a 2001 financial crisis last week.

“Turkey will emerge in a very short time from this exchange rate, interest rate, inflation spiral they are trying to force it into," Erdogan added.

Borsa Istanbul 100 Index closed 2.31 percent lower on Friday, as the heavy selloff in Turkish markets reverberated across the globe.

The Argentine peso, South African rand and Russian ruble saw their worst weekly slump.

The Euro also fell 0.6 percent to around $1.142 - its lowest levels in over a year - as investors sold off their eurozone shares.

"The European Central Bank’s warning about the potential risks to European banks from a collapsing Lira helped send the euro to a 14-month low thereby adding ammunition to the dollar which has seen continued strength – not least against emerging market currencies – for several months now," Ole Hansen, head of commodity strategy, Saxo Bank, said in a recent note.