Economy, Business And Markets

Iran Deal Sends Rial on Rollercoaster Ride

Business & Markets Desk
Iran Deal Sends Rial  on Rollercoaster Ride
Iran Deal Sends Rial  on Rollercoaster Ride

The Iranian rial took investors on a rollercoaster ride on Tuesday, as Iran and six major world powers reached a nuclear deal, capping more than a decade of negotiations with an agreement that could transform the Middle East.

The rial extended its gains against all major currencies apart from the US dollar for the fifth consecutive day, with investors rejoicing, as the historic accord heralded the end of a 12-year nuclear dispute between Iran and West.

Iran's foreign minister called the agreement "historic", saying it opened a "new chapter of hope".

After 20 months of negotiations, Iran and P5+1—United States, Britain, France, China, Russia and Germany—have reached a deal under which, sanctions imposed by the United States, European Union and United Nations would be lifted in return for Iran agreeing long-term curbs on a nuclear program, Reuters reported.

The US dollar hit a  five-month low of 31,850 rials in early morning trading on Ferowsi Street—the hub of foreign exchange trading in Tehran—but recouped its losses later as more details emerged from Vienna. The greenback was up 0.09% to a seven-day high of 32,280 rials by 1232 GMT, according to the Tehran Gold and Jewelry Union.

A Market on Edge

The excitement soon turned into cautiousness as investors were glued to their televisions to hear the deal's official statement by European Union foreign policy chief Federica Mogherini and Iran's Foreign Minister Mohammad Javad Zarif and follow-up statements by US President Barack Obama, Iran's President Hassan Rouhani and US Secretary of State John Kerry.

Bureau de change refrained from trading, waiting to price-in the statements and their details.

"There is a rush of buyers and sellers, but no one wants to trade because no one knows the exchange rates yet," said Jalil Motahhari, a veteran bureau de change owner, to Financial Tribune. "The next few days will be very choppy."

The Iranian foreign exchange market is the main gauge of the country's economic and political prospects as it is less inhibited compared to the Tehran Stock Exchange and has longer trading hours.

Contrary to the greenback's push and pull, the euro and pound both retreated against the rial on Tuesday. The euro fell 0.42% to 35,700 rials by 1232 GMT, lowest since 14 April. The pound also fell 0.40% versus the rial and changed hands at 49,700 rials.

Other foreign currencies also fell against the rial but trading remained limited.

Demand for Security

Azadi's trading was more volatile in Tehran. The benchmark bullion coin first fell to 8,670,000 rials, down 60,000 rials from yesterday's close, but later changed course and jumped 1.72% to a seven-day high of 8,880,000 rials by 1232 GMT, as haven demand outweighed risk taking and lower prices prompted traders to make bullish bets.

Official Policies

There was no sign of central bank intervention in the market on Tuesday. However, the bank raised the dollar's official exchange rate 0.1% to a historic high of 29,500 rials, narrowing the gap between its offered exchange rate and that of the market. The gap between the two rates has dropped below 10% for the first time since Iran reverted to a multiple exchange rate regime.

The bank's governor, Valiollah Seif, said earlier this month that the central bank will abandon the dual exchange rate regime and adopt a managed float six months after a deal is signed.

The governor has also vowed to dampen shocks "from emotional trading," and signaled a 32,000 rials per dollar exchange rate as the central bank's target for the near future. The bank argues that prices around this range will best benefit the Iranian economy, especially exporters.