Treasury Secretary Steven Mnuchin on Thursday evening said that the USA could look to impose fresh sanctions on Turkey if President Erdogan doesn't release imprisoned American pastor Andrew Brunson. It upheld a lower court's decision against the lifting of a travel ban on Brunson.
Ankara has accused Brunson of being linked to the Gulen movement, which it says was responsible for the failed coup attempt in 2016.
Trump later said in a tweet the United States "will pay nothing" for Mr Brunson's release, "but we are cutting back on Turkey!"
Turkish lira banknotes are seen in this picture illustration in Istanbul, Turkey on August 14, 2018.
The conflict between North Atlantic Treaty Organisation allies is even more personalized because of U.S. President Donald Trump and Turkish President Recep Tayyip Erdogan, whose uncompromising statements contribute to a sense that the tension will ratchet up before any possibility of a climbdown.
The lira has lost almost 40 percent of its value against the dollar this year, driven by worries over Erdogan's growing influence on the economy and his refusal to raise interest rates despite high inflation.
USA sanctions and tariffs have contributed to a tumble in the Turkish lira, which dropped in value to 5.86 to the dollar on Friday following Mnuchin's warning.
Brunson is under house arrest after spending almost two years in a Turkish prison under what the Trump administration has said are bogus allegations of aiding terrorists.
JP Morgan said moves by Turkish authorities showed they were committed to stabilising the currency with technical measures such as restricting foreign exchange swaps and cancelling repo auctions to push up the average cost of bank funding.
Turkish Finance Minister Berat Albayrak and his French counterpart Bruno Le Maire spoke by phone on Friday and discussed USA sanctions steps against Turkey, agreeing to act together in response to such moves, the Turkish ministry said.
Whatever action the United States takes looks likely to cause more pain for Turkish assets.
A court refused to release Mr Brunson, and the the government in Ankara increased tariffs on imports from the U.S. of cars, alcoholic drinks and leaf tobacco - and the lira recovered slightly.
Last week, the USA doubled its tariffs on metal imports from Turkey.
"I have great faith in the American people and I'm hoping that at a minimum, anyone who has a Nutella sandwich, anyone who has towels that come from Turkey that unwillingly they're participating in lifting the economy of Turkey, which is something that we should not be doing when they're holding Americans like Pastor Brunson", Arriaga said.
U.S. Treasury chief Steve Mnuchin earlier said the U.S. could put more sanctions on Turkey. Turkey also maintains a small military base in Qatar.
If convicted, the American pastor faces up to 35 years in jail.
The White House said on Wednesday that it would not remove steel tariffs on Turkey, appearing to give Ankara little incentive to work for the release of Andrew Brunson, a pastor on trial in Turkey on terrorism charges.
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