It now costs more than 4.9 Turkish Lira to buy a US dollar once again as President Erdogan's 'threats' that his country will not "make a step back" and that the US will lose a "strong and sincere ally" if President Trump imposes "large sanctions" until the pastor is freed.

Speaking to the local media, Erdogan said "you can’t make Turkey take a step back with sanctions", and accused Trump of waging a "psychological war," the Daily Sabah reported.

Erdogan also said that the US "should not forget that it will lose a strong and sincere partner" if "the U.S. does not change its stance" regarding pastor Brunson. "Instead of respecting the ruling they are making this a matter of sanctioning Turkey."

There is a small glint of hope in US-Turkey relations as Turkey’s state-run TRT reports that U.S. Secretary of State Mike Pompeo will meet Turkish Foreign Minister Mevlut Cavusoglu in Singapore.

As we noted previously, the drama over the fate of the US pastor escalated after US Congress banned the shipment of F-35 stealth fighter jets to Turkey amid objections over Turkey’s plans to buy S-400 surface-to-air missile systems from Russia. Erdoğan's government said it was adamant on pushing ahead with the purchase of the American fighter jets, and the Turkish president said he would seek "justice by international arbitration" if the US fails to deliver the fighter jets.

Another key topic of disagreement between the US and Turkey is the fate of Iranian oil imports: Turkey, a long-time client of Tehran, has been resisting US pressure to stop importing Iranian crude which the State Department has demanded its allies do by November 4. Ankara believes that US foreign and economic policy decisions are not binding for Turkey, arguing that any Iranian sanctions must be conducted under the UN-mandated international law.

While the timing and nature of potential sanctions remain uncertain, Bloomberg notes that investors are bracing for any developments that would slow the flow of funds into Turkey and pressure the currency which is already flirting with a record low against the dollar. Turkey relies on short-term portfolio flows for a large percentage of its financing needs, and a further slide in the lira threatens to fuel inflation and hamper companies’ ability to pay back their foreign-currency debts.

“I think the pair will easily test and surpass the all-time high near 4.9745,” said Win Thin, a strategist at Brown Brothers Harriman & Co., adding that the central bank may call an emergency meeting if the pressure on the currency intensifies.