The sudden drop came when Donald Trump announced on Twitter he was doubling U.S. import tariffs on Turkish steel and aluminium. The currency's slide deepened early Friday, after the Financial Times reported that the eurozone's chief financial watchdog was concerned about how some of Europe's biggest lenders would be affected by a crisis in Turkey. The U.S. recently hit two high-ranking Turkish officials with sanctions after the Turkish government refused to release imprisoned Christian pastor Andrew Brunson.
One of the triggers of the turmoil has been a standoff with the US over a detained American pastor that Turkey, a North Atlantic Treaty Organisation ally, has put on trial for espionage and terror-related charges linked to a failed coup attempt in the country two years ago.
Turkey's economy is regarded as fragile because of its high debt, which the global Monetary Fund estimates is 50 percent of its gross domestic product.
As investors piled into "safe" bonds, German yields hit three-week lows and yields on US 10-year Treasuries fell to 2.8913 percent.
If there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks. The White House said he had authorized them under Section 232 of US trade law, which allows for tariffs on national security grounds.
"This will be the response to those who have declared an economic war", he said, blaming Turkey's woes on what he described as an "interest rate lobby" seeking to push the country to higher rates. "This is a national, domestic battle", he told a crowd in the northeastern city of Bayburt.
In any case, economists warn that with the row with the United States injected into the mix, it will take far more than an increase in interest rates to reverse the downward trajectory of Turkey's once robust economy.
The lira lost 12pc against the dollar on Friday following an escalation of the tensions between Turkey and America.
A statement from the Kremlin said the two leaders discussed economic and trade ties. "The tweet is mightier than the Turkish sword", Cristian Maggio, head of emerging markets strategy at TD Securities, said in a note to clients, with reference to Trump's comments.
"Other EM currencies have held their ground against the dollar, having generally been weakening previously", said analysts at Capital Economics.
"Don't forget", he said, "if they have their dollars, we have our people, our God".
The lira's plunge has featured remarkably little on Turkish television channels and newspapers - most of which after recent ownership changes are loyal to the government - with media focusing instead on recent flooding by the Black Sea.
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.