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Tehran Currency Market: Dollar Rally Loses Momentum

The forex volatility had unsettled the markets.The forex volatility had unsettled the markets.

After days of rallying against the rial in Tehran's foreign exchange market, the US dollar is showing signs of losing momentum.

On Wednesday, the rial was quoted at 45,720 to the dollar in the open market, slightly down from Tuesday's close and below the psychological threshold of 46,000.

The rial had dropped to around 46,500 against the dollar in the open market on Monday from about 45,750 on Sunday and 37,700 in mid-2017.

Rial's rout had come as a surprise, considering the pledges of President Hassan Rouhani's administration to keep it strong and stable against other currencies.

The forex volatility unsettled the markets, with speculators leading a stampede and triggering the greenback's bull run. Repeated warnings from the Central Bank of Iran Governor Valiollah Seif that the rally is temporary initially failed to calm the market.

Late Monday, Rouhani reacted to forex market conditions and reassured that the country has sufficient foreign exchange reserves to overcome any turbulence in the currency market and prevent the national currency from depreciating further.

"The pledge of this government to the people is to provide the required foreign exchange for the country. Luckily, our foreign exchange income exceeds our expenditures," Rouhani said during a live interview broadcast on state television.

The president also denied accusations that it is allowing rial's depreciation to make up for its budget deficit as the fiscal year draws to a close, stressing that it is not in the interest of the government to let the foreign exchange rate surge.

As the biggest holder of the country's forex reserves, CBI is now pumping hard currency into the market with greater intensity.

"CBI is selling cheaper currency in packs of 50,000 to moneychangers, which will be repeated," Samad Karimi, the head of CBI's Exports Department, announced.  

The central bank has reportedly started selling cheaper currency directly to small buyers instead of propping up big ones as in the past. This is because speculators had used the opportunity to make quick profits.   

Seif has repeatedly warned investors that they were heading for losses because his bank could control the foreign exchange market and the currency is likely to rebound in the next couple of months.

Since last year, the central bank has been engineering a gradual depreciation of the rial to compensate for Iran’s high inflation rate, make exports more competitive and unify the country's dual foreign exchange rates.

As the dollar lost ground, other major currencies, including euro and pound, maintained the momentum. The rial was quoted at 57,250 against the euro and 66,600 against the pound, according to Tehran Gold and Jewelry Union's website.

The gold coin also gained slightly on Wednesday, with Bahar Azadi fetching 15.20 million rials ($332) by midday. CBI's efforts to end gold's rally by holding several auctions have been less successful.

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