Global markets are in turmoil on Friday, with a historic plunge in the Turkish lira at the center of the chaos.
The lira's decline caps a week of political news that's unnerved investors, as the US ramped up sanctions on Turkey and Russia, and the United Kingdom fretted over a no-deal Brexit.
US investors shifted focus from strong corporate earnings to the rout in Europe, sending the major stock-market indexes lower.
A slew of unnerving headlines all week from the United Kingdom, Russia, and Turkey has culminated in a wild Friday for global markets.
Turkey is front and center of the chaos on Friday, with its currency plunging to a record low against the US dollar. A diplomatic tussle between the US and its NATO ally deepened Friday after President Donald Trump said he had authorized the doubling of sanctions on the country's steel and aluminum.
The turmoil in Turkey raised fears over what it means for the eurozone, sparking a sell-off in bank stocks and other assets in the region.
"The plunge in the lira which began in May now looks certain to push the Turkish economy into recessionand it may well trigger a banking crisis," Andrew Kenningham, the chief global economist at Capital Economics, said in a note on Friday.
These fears spilled over into US markets on Friday, with investors shifting their focus away from strong corporate earnings to what was happening across the Atlantic. The Dow Jones industrial average was down 229 points, or 0.9%, at 10:02 a.m. ET, while the S&P 500 was down 19 points (0.67%). The tech-heavy Nasdaq Composite was down 59 points (0.8%), and was poised to end an eight-day winning streak.
Here is what you need to know.
Turkey in turmoil
This week, the Turkish lira has fallen 23% against the dollar, losing nearly a quarter of its value.
Ankara and Washington have been at odds over the detention of the American evangelical pastor Andrew Brunson on terrorism charges, a matter that President Donald Trump has discussed directly with Turkish President Recep Tayyip Erdogan over the phone.
The US proceeded on August 1 to impose financial sanctions on its NATO ally, blocking the Turkey's ministers of justice and interior from doing business with Americans.
The diplomatic tension, and the failure of Turkish officials to persuade the US to lift the sanctions, plunged the lira to new lows this week. The currency's slide deepened early on Friday, after the Financial Times reported that the eurozone's chief financial watchdog was concerned about how some of Europe's biggest lenders would be affected by a crisis in Turkey.
The lira stumbled even more as Erdogan delivered a wild speech to supporters about the plunging currency, encouraging Turks to buy it up.
"Don’t forget, if they have their dollars, we have our people, our God," he said.
The final gut punch to the lira came after Erdogan's speech, when Trump tweeted he had "just authorized a doubling of tariffs on steel and aluminum with respect to Turkey."
More proof of how nervous investors are about Turkey's economy could be seen in the iShares MSCI Turkey exchange-traded fund, which plunged 18% and saw the most pre-market trades ever, according to Bloomberg.
The pound also nosedived this week. And like the lira, investors found new reasons on Friday to dump the currency.
Its selloff was based on rising fears that Britain would leave the European Union without a deal, with less than eight months to go before the planned exit date.
"The possibility of a no deal at the moment is uncomfortably high," Bank of England Governor Mark Carney said during a radio interview last week.
A stronger dollar has also put more pressure on the currency. The dollar index, which measures the currency's strength against a basket of other developed-nation peers, hit its highest level since June 2017 on Friday.
Investors were already grappling with what a no-deal Brexit would mean for the continent. According to Barclays, they have pulled $51 billion from European funds since early March, wiping out all the inflows of 2017.
On Friday, they also had to also factor in Turkey's economic crisis.
The Russian ruble plummeted to its lowest level against the dollar since 2016 this week as the US said it was imposing more sanctions on Moscow for a chemical attack in the UK earlier this year.
This announcement intensified fears that US sanctions on Russia may not recede anytime soon. The ruble has lost 17% of its value against the dollar this year.
Russia struck back Friday, with Prime Minister Dmitry Medvedev saying that any move to rein in Russian banks or their foreign currency dealings would be "economic war."
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