US Treasury Secretary Steven Mnuchin said on Thursday that the United States was ready to place further economic sanctions on Turkey if detained American pastor Andrew Brunson is not released. Turkish officials say the case is a matter for the courts.
"We have more that we are planning to do if they don't release him quickly". Since the USA has large numbers of troops positioned in Qatar and Turkey, it's not clear they could afford to alienate both by escalating the diplomatic conflict too far.
The lira has lost almost 40 percent of its value against the dollar this year as investors fret about President Tayyip Erdogan's influence over monetary policy.
The lira has clawed back some ground over the past two days - after losing nearly a quarter of its value on Friday and Monday - but economists are warning that Turkey must urgently address its economic imbalances to avoid more trouble.
Turkey has warned it will retaliate if the United States imposes further sanctions over a detained U.S. pastor as the row between the two North Atlantic Treaty Organisation allies intensifies.
Mr Trump said: "They want to hold our wonderful pastor".
Heavy selling in recent weeks has spread to other emerging market currencies and global stocks and deepened concerns about the economy, particularly Turkey's dependence on energy imports and whether foreign-currency debt poses a risk to banks. Turkey retaliated with some $533 million of tariffs on some USA imports - including cars, tobacco and alcoholic drinks - and said it would boycott US electronic goods, singling out Iphones.
Turkey has proven a key ally for Qatar over the past year, helping the tiny Gulf nation ride out a more than 14-month blockade by its powerful neighbors, including Saudi Arabia, with which it shares its only land border.
Qatar has promised to make a Dollars 15 billion direct investment in Turkey, badly hit by a currency crisis amid a widening diplomatic standoff with the United States, officials said. Turkey's banking watchdog on Wednesday also moved to crack down on shorting of the lira.
Security remains tight outside the building in Turkey where Brunson is being held. Referring to imprisoned pastor Andrew Brunson, Trump said "they have a great Christian pastor there, he's a very innocent man".
Last week, the United States doubled its tariffs on metal imports from Turkey.
The 50-year-old faces 35 years in prison, which would amount to a life sentence.