Istanbul - Turkey's embattled lira on Friday hit new record lows against the US dollar and euro, losing 7% in value as strains with the US showed no sign of easing and fears grew over the exposure of European banks.
The lira was trading at 5.95 to the dollar, a loss in value on the day of 7.5%. However it had rallied partially after earlier crashing some 12% through the 6.0 level for the first time in history, trading at one point above 6.2.
The lira has now lost over a third of its value against both the dollar and the euro this year, with the currency battered by both concerns over domestic economic policy and the political situation.
Against the euro the lira fared no better Friday, losing 7.0% in value to trade at 6.8 to the euro.
Turkey remains at loggerheads with the US in one of the worst spats between the two NATO allies in years over the detention for the last two years of American pastor Andrew Brunson and a host of other issues.
Talks this week in Washington failed to resolve the impasse which has led both sides to slap sanctions on senior officials amid fears of graver measures to come.
Meanwhile, markets are deeply concerned over the direction of economic policy in Turkey where inflation has hit nearly 16% but with the central bank reluctant to raise rates in response.
President Recep Tayyip Erdogan after winning June 24 elections with revamped powers tightened his control over the nominally independent central bank and appointed his son-in-law Berat Albayrak to head a newly-empowered finance ministry.
Concerns were intensified Friday by a report in the Financial Times that the supervisory wing of the European Central Bank had over the last weeks began to look more closely at euro zone lenders' exposure to Turkey.
The report said that the situation is not yet seen as "critical" but Spain's BBVA, Italy's UniCredit and France's BNP Paribas are regarded as particularly exposed.
"Investors have been looking at the unfolding currency crisis in Turkey as a local difficulty, however the accelerating speed of the declines appears to be raising concerns about European banks exposure to the Turkish banking system," said Michael Hewson, chief market analyst at CMC Markets UK.
Albayrak, who formerly served as energy minister, is on Friday expected to announce what he has described as a "new economic model" for Turkey but markets remain sceptical.
Erdogan after the election is now in supreme control of economic policy in Turkey, analysts say, and has repeatedly alarmed markets with unorthodox theories that low interest rates can bring down inflation.
The president did nothing to reassure markets with comments overnight that the pressure on the lira was due to what he described as a "variety of campaigns" and appearing to play down the magnitude of the crisis.
"If they have dollars, we have our people, we have our right and we have Allah!" he said.
The plunge in the lira has featured remarkably little on Turkish television channels and newspapers -- most of which after recent ownership changes are loyal to the government -- with most media focusing instead on recent flooding by the Black Sea.
"Talk of a new economic model set to be announced today aren't doing much to quell investor concerns against a backdrop of a leader who appears to be invoking divine intervention and the people to push back against the rest of the world," said Hewson.* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER