The US dollar climbed to a record high against the Iranian rial on December 16 on Tehran's Ferdowsi Street, as strong demand and limited supply drove foreign exchange rates to new record highs.

The dollar rose 1.2% to reach an all-time high of IRR762,500, according to market data, extending an upward trend that began two months ago.

Currency traders attributed the rally to several factors, including the impact of former US President Donald Trump’s electoral victory and continuing regional tensions.

Over the past three days, the advance accelerated, fuelled by a surge in demand for the greenback and the unexpected holidays that disrupted the operation of banks and exchange bureaux. 

Market participants said Iranians were increasingly turning to the dollar as a safe haven to protect the value of their assets amid ongoing uncertainty.

However, they also reported a tightening in dollar supply in recent days. The government’s decision to declare holidays due to severe air pollution and to curb natural gas consumption amid plunging temperatures has added to the currency market’s imbalance.

Other currencies also strengthened on the back of the dollar, including the euro and the British pound sterling, with the latter near a breakthrough of the IRR1mn threshold.

The Emirati dirham (AED) rose 1.71% to IRR208,600, while the euro gained 1.28% to IRR801,600. Payment orders were quoted even higher, with dollar orders sold at IRR778,300 and dirham orders at IRR208,800, both up 1.85% from the previous day’s close.

Prices also climbed in Iran’s newly established regulated currency market. The dollar was quoted at IRR612,000 at the Iran Centre of Exchange on Saturday, compared with IRR595,000 in the previous session. The regulated market, designed to replace the secondary market known as Nima, is intended to let rates be determined by supply and demand rather than by directives from the Central Bank of Iran.

Still, traders and analysts are watching closely to see how the new market develops. Some questioned why free-market rates surged despite the first Nima-based quote in the regulated market coming in below IRR600,000 and despite suggestions of surplus supply. 

These observers argue that the regulated market’s long-term effectiveness hinges on minimal intervention by authorities. By allowing prices to adjust freely, they say, the gap between the regulated and free-market rates could narrow over time, gradually restoring stability and confidence to Iran’s currency market.