Dollar retreats as prospect of China-U.S. trade talks soothe nerves

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During the cabinet meeting, President Donald Trump took a shot at Turkey, which is a long-time US ally and fellow North Atlantic Treaty Organisation member.

A higher court in Turkey's Izmir Province has rejected an appeal to dismiss the charges against a USA pastor whose prosecution has provoked tensions in U.S.

The United States and Turkey have imposed tit-for-tat tariffs in an escalating attempt by Trump to induce Erdogan into giving up the pastor.

The 3rd Penal Court in the western province of İzmir rejected the appeal on August 17, ruling for the continuation of Brunson's house arrest, as well as a travel ban imposed on him.

"Diplomatic negotiations hit speedbumps and that's not unusual in these kinds of situations", said Jay Sekulow, a personal attorney for Trump who is also representing Brunson's family.

Anadolu Agency said a high court in Izmir upheld a lower court's decision earlier this week to keep pastor Andrew Brunson under house arrest.

Gulen has denied the charges, and the USA has rejected every request to force him from his compound in Pennsylvania to stand trial in Turkey.

A Turkish court on Friday turned down another appeal to free the pastor in the third such rejection, his lawyer said.

Turkish authorities arrested Brunson in October of 2016 and accused him of being part of the attempted military coup earlier that summer.

Turkey tries to contain crisis but currency keeps falling
Hungary, for example, has seen its currency, the forint, fall by almost 4% against the U.S. dollar since last Wednesday. The euro traded up 0.1 percent on Tuesday at $1.1420 EUR=EBS , having fallen to a 13-month low of $1.1365 on Monday.

US Treasury Secretary Steven Mnuchin told President Donald Trump at a cabinet meeting on Thursday that sanctions were ready to be put in place.

"We tell them that we see their game and we challenge them", he said.

Erdogan has moved to shore up alliances in Europe and the Middle East, easing pressure on the battered lira, as the standoff with the US has deepened. Turkish companies need to pay close to 5.80 lire for each US$1 of debt that they owe, for example, up from 3.79 lire at the start of the year.

Memories of past emerging market crises, such as the Asian financial crisis of 1997 and Turkey's 2001 crisis, came back to haunt investors this week and prompted a wave of selling across emerging market assets as a whole.

Last Wednesday, in retaliation, Turkey increased tariffs on several US -origin products, including alcohol and tobacco products and cars.

Investors are concerned that Turkey's has amassed high levels of foreign debt to fuel growth in recent years, and as the currency drops, that debt becomes more expensive to repay, leading to potential bankruptcies.

"We will never be happy with having issues with the U.S. We can easily solve problems with the U.S. but not with its current mindset", he said.

In a tweet on Thursday, Trump urged Brunson to serve as a "great patriot hostage" while he is jailed and criticized Turkey for "holding our wonderful Christian Pastor".

Meanwhile, Turkish courts have moved to defuse other legal cases that have irritated relations with the EU.

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