Erdogan warns of campaign against Turkey as lira plummets

A U.S. Air Force A-10 Thunderbolt II departs Incirlik Air Base Turkey Jan. 20 2018

A plummeting Turkish lira sent ripples through global equities and emerging markets on Friday, as rising fears of a wider fallout sent investors scurrying for the safety of assets such as the yen and US government bonds.

The Lira booked a new record low against the Dollar as talks in Washington aimed at working through fresh sanctions failed and markets showed nerves ahead of an impending announcement on a "new economic model" which hints at more government interference in the economy.

The pound was up 0.15 per cent against the euro but was down 0.5 per cent against the dollar, taking it to a 13-month low. "This means that refinancing needs cause a challenge for Turkey very soon in an environment of a weak currency and sanctions could worsen the situation even more".

Analysts say the lira will keep falling unless the central bank hikes interest rates.

The MSCI All-Country World index, which tracks shares in 47 countries, was down 0.6 percent on the day, having erased all its gains for the week.

The added weakness in Turkish currency - that has seen it plunge a further 10% - comes as disappointment set in after talks between Turkish and United States diplomats in Washington failed to result in a compromise that was likely to ease sanctions. The lira is now down 36% this year and bond yields have sky-rocketed.

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A new analysis by Berenberg Bank sees little long-term impact of high Turkish inflation and low interest rates on eurozone gross domestic product (GDP) growth.

Adding to emerging market currency woes was the Russian rouble, which weakened to 67.12 to the dollar.

The Australian dollar, often viewed as a gauge of global risk appetite due to its reliance on commodities, was the biggest faller among developed currencies, down 1 percent on the day. "While they have dollars, we have our people, law and Allah", the Turkish leader said addressing citizens in the Black Sea city of Rize.

In commodities, US crude oil rose 0.25 percent to $66.99 a barrel, while Brent crude was 0.4 percent stronger at $73.33 per barrel.

Despite the widespread flight to safe-haven assets, spot gold fell 0.2 percent to $1,210 per ounce.

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