The US late on August 1 hit two Turkish ministers with sanctions over the pastor Brunson affair sending the Turkish lira (TRY) past the psychogically unsettling level of five to the dollar and causing analysts to wonder whether this will be the straw that breaks the camel’s back in sending Turkey into a currency-and-debt crisis.

The sanctions target Minister of Justice Abdulhamit Gul and Minister of Interior Suleyman Soylu. The US Treasury said in a statement that they both “played leading roles in the organizations responsible for the arrest and detention of Pastor Andrew Brunson”.

It is unprecedented for the US to hit a fellow Nato member with such sanctions.

“Just trying to remind myself that the US and Turkey are supposed still to be allies,” said BlueBay Asset Management strategist Timothy Ash, adding in a note: “Guess this also shows that Turkey thought its strategic position in Nato counted for something—[Donald] Trump just re-affirmed, he does not care about Nato—its expendable. It’s the mid-terms stupid.”

The reference to the mid-terms is a reminder that Trump and Vice President Mike Pence are attempting to placate their Christian Right base supporters in advance of November’s US elections. There is outrage among such voters that the evangelical Brunson, arrested on charges relating to terrorism and espionage connected to the failed July 2016 coup against the Turkish government, remains under house arrest while facing trial.

Ahead of the announcement of sanctions, Turkish President Recep Tayyip Erdogan said the Turks will not bow to threats fueled by an “evangelist and Zionist mentality” in the US. “We will continue on our road that we believe in, without making the slightest concession from our freedom, independence and judicial independence,” Erdogan said, according to the state-run Anadolu Agency. “No one will gain anything by threatening us.”

White House press secretary Sarah Sanders told reporters: "We believe [Brunson’s] a victim of unfair and unjust detention."

"We've seen no evidence that Pastor Brunson has done anything wrong," she added. “[…] any property or interest in property of both [sanctioned] ministers within US jurisdiction is blocked and US persons are generally prohibited from engaging in transactions with them," Sanders also stated.

Brunson, who denies all the charges pressed against him, is not the only US citizen held in Turkey that Washington is concerned about. Bloomberg reported on August 1 that within the US State Department, Brunson and other prisoners including Nasa scientist Serkan Golge and three Turkish employees of the US mission to Turkey are referred to as “hostages." The US reportedly says they’re innocent and are being held by Turkey for the sole purpose of extracting concessions on other points of tension in the US-relationship.

Lira collapses past 5.00
By around 22:45 Istanbul time, the TRY had weakened to 5.0024 against the USD, having recorded an all-time low of 5.0070 at 20:20.

The collapsing lira—now down around 25% versus the dollar in the year to date—is a great danger to Turkish companies and banks that depend on foreign capital to plug one of the world’s largest current account deficits. The shortfall requires about $200mn a day in foreign financing.

Investors in Turkey are also on edge over the possibility of a fine or sanctions against Turkiye Halk Bankasi (Halkbank), a state-run lender whose former deputy chief executive officer was convicted in a New York court of participating in a money laundering scheme to help evade sanctions on Iran.

The row between two Nato members will also drive fears that Turkey could geopolitically grow very much closer to Moscow. US senators have lately threatened to block the delivery of F-35 stealth fighter jets to Ankara unless it relented in the Brunson case and cancelled its planned purchase of Russia’s S-400 advanced missile defence system, which is not compatible with Nato military hardware.

Among other issues that have led to fraught relations between Erdogan and the Trump administration is the US refusal to accede to a request from Ankara for the extradition of self-exiled Pennsylvania-based Muslim cleric Fetullah Gulen. Turkey blames Gulen and his network for the attempted coup, although Gulen has strenuously denied any involvement.

US support for Kurdish forces fighting in the Syrian civil war and against Islamic State has also angered Erdogan. He views them as a “terrorist” extension of the Kurdistan Workers’ Party (PKK) which has fought an insurgency aimed at securing Kurdish autonomy in Turkey.