Global markets are selling off following the collapse of the Turkish lira, which fell almost 9% in early trading on Monday and the euro hit a one-year low as investors fear that the country’s financial crisis could spread to European markets.
Markets remain unclear on any response from the government in Turkey, where President Recep Tayyip Erdogan has been widening his control over economic policy following Friday’s events.
The lira’s collapse is reported to be the contributing factor to renewed US dollar strength that is starting to put pressure on emerging markets more broadly.
The major concern around the lira is that its weakness will start to affect European banks. The eurozone’s chief financial watchdog has become worried about the exposure of major European lenders — mainly Spanish and French banks — to Turkish debt.
The US dollar has been strengthening against most currencies as the American economy has strengthened, allowing the US Federal Reserve to start lifting interest rates.
The Trump administration announced further tariffs on Turkish imports on Friday, and Turkish diplomats recently failed to stop the US from imposing sanctions against two senior ministers, with relations between Ankara and Washington further deteriorating.