Tehran's money market saw fresh volatility on February 9 as the US dollar reached IRR 925,800, marking a new record high against the Iranian rial.

Despite Iran's capital officially closing due to snow and freezing temperatures, street hawkers were out on Ferdowsi Square and the adjoining Ferdowsi Street, buying and selling in small numbers. At the same time, official Bureaux de Change kept their doors open but refused to sell due to the depreciating rial following the return of US President Donald Trump and his so-called "maximum pressure" campaign on the Islamic Republic to bring it to the negotiating table. 

The broader currency market followed suit, with the euro reaching IRR 945,400 and the British pound sterling trading at IRR 1,134,800; the UAE dirham and Turkish lira also advanced, settling at IRR 252,600 and IRR 25,500, respectively, as many rushed to convert their rial holdings into hard currencies.

Market sentiment has deteriorated notably since last week when news broke of Trump's anti-Iran memorandum, triggering a fresh wave of negative expectations. The downward trend in rial’s value was intensified following the Supreme Leader Ayatollah Ali Khamenei’s speech dismissing negotiations with the US.

Traders on Tehran's Ferdowsi Street report a growing aversion to holding the national currency, with new capital rapidly being converted into foreign currency and other assets. "Anyone acquiring new rials is quickly seeking to convert them into assets. The national currency has lost its appeal entirely," explained a veteran currency trader in Tehran's Ferdowsi market, speaking anonymously to IntelliNews on February 9.

The situation has been further complicated by domestic tax policies that traders say are restricting rial circulation. Observers report growing reluctance to engage in rial-based transactions due to tax implications, creating additional pressure on the currency market. This dynamic has contributed to what some describe as a self-reinforcing cycle of the IRR weakness.

Possible intervention

The Central Bank of Iran's (CBI) market maker appears to be actively managing the situation, though opinions differ on its effectiveness. Some traders view recent price fluctuations as part of a deliberate strategy to trap amateur buyers at peak prices, warning of high risks in current market conditions.

Some anticipate a price correction, citing the possibility of significant market maker intervention. They suggest that current dollar rates could fall by at least IRR 30,000 from peak levels. The opposing view holds that traditional market analysis no longer applies in the current environment, with wealth disparities increasingly evident in trading patterns.

Some sources also say that the Central Bank of Iran (CBI) is to launch a significant intervention in the market on Monday, February 10, primarily through dirham injections. The UAE dirham's central role in Iran's foreign exchange market has become increasingly evident, as it provides a crucial mechanism for international trade settlement and serves as a more accessible alternative to the heavily-sanctioned dollar market. This relationship has made the dirham's availability and price a key indicator of Iran's broader foreign exchange market stability.

Policymakers challenged

At the same time, political tensions have surfaced as hardliner factions intensify pressure on the economy minister Abdolnasser Hemmati.  Fars News Agency referred to the Minister of Economy’s previous comments on currency prices and the move towards a unified exchange rate, criticising him for remaining silent.

"Currency issues are not my responsibility; ask Farzin [the CBI governor]," Fars quoted Hemmati as saying.

The government's currency policy, pursued by the Minister of Economy, aims to unify exchange rates and reduce government intervention in the currency market.  The minister previously indicated that "we will certainly unify the currency rate with the cooperation of the Central Bank. When we align the NIMA rate with the market rate, the open market dollar will become cheaper."