The Turkish lira weakened to a fresh record low beyond 8.05 against the U.S. dollar on Monday on investor unease about the central bank's decision last week to keep its policy rate on hold and various sources of geopolitical concern.
Strains in ties with the United States, a row with France, a dispute between Turkey and Greece over maritime rights and the conflict in Nagorno-Karabakh have all unsettled investors.
The lira weakened more than 1% to as far as 8.0515 from a close of 7.9650 on Friday. It has lost 26% of its value this year against the U.S. currency. It also hit a record low beyond 9.5 against the euro.
"So very predictable after the CBRT fell short with its rate action last week," said Timothy Ash at BlueBay Asset Management.
The central bank (CBRT) had been expected to raise its policy rate by 175 basis points to 12% in the face of weakness in the lira triggered by concerns about high inflation and the central bank's badly depleted FX reserves.
However, it left the rate at 10.25% on Thursday and raised its late liquidity window to 14.75%, saying significant tightening in financial conditions had already been achieved after steps to contain inflation risks.
President Tayyip Erdogan confirmed on Friday that Turkey had been testing the S-400 air defence systems that it bought from Russia and said U.S. objections on the issue did not matter.
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Washington says Ankara's purchase of the Russian systems compromises NATO defences, and has threatened sanctions. The S-400 firing test last week prompted a furious response from the U.S. State Department and the Pentagon.
But Erdogan struck a defiant tone on the issue of sanctions on Sunday, saying in a speech: "You don't know who you are dancing with. Whatever the sanctions are don't be late. Do it."
He also unleashed fierce personal criticism of France's Emmanuel Macron at the weekend, saying had a problem with Muslims and needed mental checks - a rebuke that caused France to recall its ambassador from Ankara.
Separately, Turkey has extended the seismic survey work of an exploration ship in a disputed area of the eastern Mediterranean until Nov. 4 - a move that Greece condemned on Sunday as "illegal", reviving tensions between the NATO members.