• Turkey announces punitive tariffs against many American products
• Lira recovers to 5.85 against USD
• US alcohol, automobiles and tobacco hit particularly hard

Turkey’s heavily punished currency, the lira, strengthened sharply yesterday morning after the Turkish government announced that it would impose significant tariffs against American products in retaliation for what it described as “deliberate attacks” against its economy.

The lira made a quick and strong onslaught against the USD, momentarily forcing the USD/TRY rate to below 6 again and recouping some of the major losses it suffered during the last week.

By early Thursday morning, the USD was trading at 5.85 against the lira, which is still stronger than a week ago but not nearly as strong as it was before.

Yesterday morning’s robust performance was the result of new rules issued by Turkey’s banking watchdog that reduced the limit for Turkish banks’ spot, swap and forward transactions with overseas banks to 25% of their equity.

This aims to stop investors from betting against Turkish assets and makes it harder for Turkish institutions to deal in derivatives in overseas markets. The strong performance of the TRY also came only hours after the government announced punitive tariffs against many American imports, including tobacco, cars and alcohol, along with rice, coal and cosmetics products.

US alcohol imports will now face a tariff of 140%, while the tariff is 120% for automobiles and 60% for tobacco.

Turkish Vice President Fuat Oktay commented: “The import duties were increased on some products, under the principle of reciprocity, in response to the US administration’s deliberate attacks on our economy.”

The trade war between the two countries started because Turkey refuses to release American pastor Andrew Brunson, who stands accused of being a spy for Kurdish separatists.