ISTANBUL (Reuters) – Turkey doubled tariffs on some U.S. imports including alcohol, cars and tobacco on Wednesday in retaliation for U.S. moves, but the lira rallied further after the central bank’s liquidity moves had the effect of supporting the currency.Ankara acted amid increased tension between the two NATO allies over Turkey’s detention of a Christian American pastor and other diplomatic issues, which have helped send the lira tumbling to record lows against the dollar.

The currency TRYTOM=D3 has lost nearly 40 percent against the dollar this year, driven by worries over President Tayyip Erdogan’s growing influence on the economy and his repeated calls for lower interest rates despite high inflation.

It rebounded some 6 percent on Wednesday, briefly strengthening to less than 6.0 against the dollar, after the central bank squeezed lira liquidity in the market, effectively pushing up rates and supporting the currency.

Optimism about better relations with the European Union after a Turkish court released two Greek soldiers pending trial and a banking watchdog’s step to limit foreign exchange swap transactions have also helped the lira.

“They are squeezing lira liquidity out of the system now and pushing interest rates higher,” said Cristian Maggio, head of emerging markets strategy at TD Securities.

“Rates have gone up by 10 percent … The central bank has not done this through a change in the benchmark rates, but they are squeezing liquidity, so the result is the same,” Maggio said.