The Turkish currency hit a record low of 26.9 against the dollar, down from the 26.3505 level recorded at the end of trading on Monday.
The Turkish lira has fallen 30 percent since the start of the year.
According to a Reuters poll, Turkey's central bank is expected to raise interest rates by 500 basis points to 20 percent this week, fulfilling its pledge of further tightening to curb inflation.
The central bank will announce its interest rate decision at 1100 GMT on Thursday.
"The news that the central bank will raise interest rates will fall short of market expectations leads to a lower lira," said one trader.
"Gradual increases in interest rates were indeed a difficult path, but concern in the market that the increases might not be enough is starting to be reflected clearly in prices."
In June, the central bank raised its policy rate by 650 basis points to 15 percent, and Turkey's central bank promised to continue tightening until there is a significant improvement in inflation expectations.
The rate hike and the hawkish tone were the strongest signs of a reversal in Turkey's monetary policy, after years of loose politics under President Recep Tayyip Erdogan, who prioritized growth and investments.
But the increase in June was lower than expected, as economists said Erdogan's influence on the central bank limits how far they can go in tightening policy.
Turkey's annual inflation rose to a 24-year high of 85.51 percent last October, mainly due to the lira's depreciation due to Erdogan's policy of low interest rates. Inflation fell to 38.2 percent by June but is expected to rise again.