Friday's drop in the euro, to a one-year low of $1.14, stems in part from concerns that some European banks have considerable exposure to loans in Turkey. U.S. stocks were also rattled.
The lira may slide another 5%-10% before recovering to 5 lira to the dollar by the end of the year, according to a report from ABN Amro. "Our relations with Turkey are not good at this time!" he noted.
Policy errors created the current situation, with Turkey's central bank decision not to raise rates in their last meeting a key driver, said Charlie Wilson, an emerging markets-focused portfolio manager at Thornburg Investment Management in Santa Fe, New Mexico. Financial upheaval there risks further destabilizing an already volatile region.
"If they have their dollar, we have the people, we have Allah, " he said.
The new duties on Turkey are double the level that Trump imposed in March on steel and aluminum imports from a range of countries.
'This is a national, domestic battle.
But Turkey's trade ministry said the tariffs were against World Trade Organisation rules. He has denied the charges.
Analysts suggest Erdogan could have Washington in mind, given Ankara is demanding the extradition of US -based Turkish cleric Fethullah Gulen, who is blamed for masterminding the botched 2016 military takeover.
The defiant tone and war rhetoric only hurt the lira more, before Erdogan's finance chief and son-in-law, Berat Albayrak, tried to ease investor concerns during a conference, saying the government would safeguard the independence of the central bank.
The Turkish president took aim at the USA in his address, claiming "some countries have engaged in behaviour that protects coup plotters and knows no laws or justice".
In a televised speech on Friday, he referred to the diplomatic standoff as an economic war.
Investors piled into "safe" government debt, with German yields hitting three-week lows and the yield on the benchmark USA 10-year Treasury note falling to 2.88822 percent. It is host to an X-band radar, a critical part of the Western alliance's missile defense system again Iran.
"In most cases though, we suspect that this resilience will prove temporary", they said, highlighting expectations of rising USA interest rates and worries over growing USA protectionism. "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.
The Lira has plunged 66% since the start of the year, pushing up the cost of goods for Turkish people and shaking global investors' confidence in the country. Gulen denies involvement, and the US government says it has no evidence to justify his extradition.
Brunson was arrested in 2016 on charges that he had participated in a failed military coup against Erdogan, and had colluded with Kurdish militants.
His cause resonates with Mr Trump's Christian conservative supporters.