"The markets now fear that sanctions could be imposed on Turkish banks". Further declines in the local currency will also start to see further potential spillover effects to European banks across the region (due to their credit exposure) and that will hurt equities sentiment even further and exacerbate the current risk-off mood even more.
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.
That took European bank shares down 1.3 percent while the pan-European STOXX 600 index fell 0.7 percent.
"We are entering into a balance-of-payment crisis here", said Cristian Maggio, head of emerging market strategy at TD Securities in London.
The recovery of Sterling ensures the Pound-Euro rate is quoted at 1.1153 on the interbank market, in turn raising the best rates on payments towards the 1.11 threshold and lifting high-street bank transfer rates towards the mid 1.10s.
The Turkish delegation met with the State Department's No. 2 official, John Sullivan, on Wednesday to address friction between the North Atlantic Treaty Organisation allies.
"It is hard to pinpoint the point of no return (for Turkey and the lira)" said Tilmann Kolb in the Chief Investment Office at UBS Wealth Management.
There was widespread selling of Turkish financial assets and fears are growing the country might have to turn to the International Monetary Fund for support or introduce capital controls - measures that prevent outflows - became a distinct possibility. Let's see if we'll have the potential to get there after Erdogan's speech. Turkish President Recep Tayyip Erdogan has described attempts to exert economic pressure on his country, including by means of destabilizing its financial system, as futile, Anadolu news agency reported on Friday.
"The near-term path for the TRY is more in the hands of Ankara".
"We doubt Turkey is ready to limit its fiscal flexibility right now".
"Furthermore, diplomatic tensions between the United States and Turkey are increasing as Turkey has refused to free the American priest, Andrew Brunson, who Erdogan claims to be a part of the failed coup attempt in 2016".