The Turkish lira took a fresh dive against the dollar on Friday on worries of new conflict with the U.S.
The currency weakened more than 6% to 6.2318, after hitting a record low against the dollar on Monday before the country's regulators tighten rules in a bid to clamp down on negative bets against the currency.
The fresh slide was likely by renewed threats by the U.S. to impose further sanctions on the country if it does not freed American evangelical pastor Andrew Brunson.
U.S. Treasury Secretary Steven Mnuchin reportedly told President Donald Trump at a cabinet meeting Thursday that sanctions were ready to be put in place.
Trump tweeted that the U.S. would "pay nothing for the release of an innocent man, but we are cutting back on Turkey."
The Turkish banking watchdog has taken steps in recent days to stabilize the currency, limiting futures transactions for offshore investors and lowering limits on swap transactions.
"Turkey is no small fry. It contributes 1% to global GDP. Beyond the obvious geopolitical concerns, a major Turkish recession would pose a significant challenge for financial markets and for other economies," Berenberg Chief Economist Holger Schmieding said.
Bluebay's Mark Dowding said he expects overseas banks and investors to continue to pare exposure.
"Contagion risks from Turkey have impacted other emerging markets with most high yielders and consensus long positions coming under material pressure in recent days. Volatility has been elevated and those countries with large current account deficits and substantial short-term funding needs appear the most exposed in our view," he added.