• Domestic Economy

    Where Is Currency Market Heading?

    These days, the foreign exchange market is gripped by fluctuations in the US dollar price. In general, two categories of factors affect its price: international issues and inflationary expectations, and the country's domestic economic conditions, including budget, banking and commercial imbalances, economist Vahid Shaqaqi-Shahri prefaced an article for the Persian newspaper Jahan-e San’at with this note. A translation of the text follows:

    Although measures have been taken to reduce economic dissatisfaction, these measures have not been effective. As a result, efforts to resolve the discontent have not yet yielded the desired result. Based on this, the economic disharmony, as one of the influential factors on the currency market, has not yet been resolved and continues to trigger the increase in the dollar’s price.

     

    Recent Political Developments

    It is clear that in recent days, the intensity of price fluctuations in the currency market has increased and rumors determine whether the price of the dollar is heading downward or upward. 

    Among the news, mention could be made of the recent statements of the foreign minister that JCPOA (the Joint Comprehensive Plan of Action) negotiations are continuing behind the scenes and the government has not abandoned the issue. 

    Another development is the exchange of political prisoners between Iran and Belgium. It is noteworthy that such events have mainly taken place with the mediation of Oman. The Sultan of Oman's recent visit to Iran could be seen as proof of the claim that the release of political prisoners was done through the mediation of Muscat. 

    The meeting of the IAEA Board of Governors in June is other piece of news that has affected the currency trading process these days. However, unlike the other news, this one has changed the direction of the market toward increasing the dollar prices.

    Although the aforementioned issues have immediate and short-term effects on currency prices, what could have a long-term impact on prices in the currency market is the lifting of sanctions and the revival of JCPOA. The fact is that Iran lost the opportunity vis-a-vis JCPOA during the two years the Democrats have been in office in the US, and this has increased concerns that JCPOA will not have a clear fate after the long time spent to resolve tensions.

     

    US Elections

    This issue becomes clearer when we remember that this year we have the intra-party elections in the United States and both likely candidates of the Republicans, ex-president Donald Trump and Ron DeSantis (Florida’s governor) hold tough positions toward Iran. The hard position of the aforementioned candidates for the US elections could be one of the new concerns for Iran's foreign policy and escalate inflationary expectations in the coming months.

    The next issue is the inter-party elections in the United States, which are expected to begin in the next six months when the Democratic and Republican candidates start their election debates to prepare for the elections in November. Undoubtedly, issues related to Iran, along with topics related to China, will be among challenging issues for intra-party and inter-party candidates. In the current situation, it seems that the Americans are not willing to come to the negotiating table and the incumbent US president is no longer willing to continue negotiations with Iran. 

    Under these conditions, it can be acknowledged that Iran has lost the golden opportunity for negotiations and the possibility of lifting sanctions since the Democrats took power.

     

    What to Expect

    The government and especially the Central Bank of Iran are expected to prepare for new price fluctuations in the currency market based on expectations. 

    Just as the news of the visit of the Sultan of Oman could easily reduce the price of the dollar, there is also a possibility that with the start of internal and external party debates in the United States or the escalation of mischief in some European countries, the inflationary expectations in Iran will once again intensify and lead to price inflation in the currency market.

    In terms of Iran’s political prospects, in the most optimistic case, the fluctuation range of the dollar price can be predicted in the range of 500,000 rials [for each US dollar]. Taking into account the three issues of a drop in global oil prices, the intra-party and inter-party elections in the United States, as well as the approach of Europeans regarding Iran and the strict positions they have taken towards Tehran, the government should expect the intensification of inflationary expectations and the possibility of renewed growth of prices in the foreign exchange market due to international developments.