The Impact of Iran’s Nuclear Deal on the Foreign Exchange Market

Iran is a country that has long been somewhat of a black sheep in the world of international politics. Iran’s nuclear deal has resulted in its virtual ostracization by the more powerful countries of the west, and has resulted in several economic sanctions against Iran. These economic sanctions have resulted in a steady decline of the once powerful Iranian economy. These sanctions were mostly imposed by the permanent members of the UN security council, these members being the USA, UK, Russia, China and France. These sanctions were conditionally placed, with Iran having to cancel its nascent nuclear program in order to have them lifted. Iran has been notoriously stubborn in this matter, preferring to suffer the economic sanctions rather than abolish its nuclear program, to the detriment of its populace.

However, a recent even seems to have proven Iran the victor in this war of wills. The UN Security Council member nations, along with Germany, collectively referred to as the P5+1, following a series of intense talks conducted at the Headquarters of the United Nations, located in Geneva, decided to implement a deal that would require Iran to abolish its nascent nuclear program headquartered in Iran in exchange for a gradual phasing out of the economic sanctions that have been placed upon it.

This deal sent shockwaves throughout the economic world, particularly in the largest market in the world: The Foreign Exchange Market. A commonly acknowledged fact in the foreign exchange market was that the Iranian currency was very weak against the dollar. It was so weak that people had begun investing in the dollar currency in order to preserve the value of their earnings. However, immediately after the nuclear deal was signed, the Iranian rial began to appreciate against the US dollar. This lead to investors in the dollar currency to quickly exchange their money back into rials before the valued dropped too far. This influx of dollars being sold within Iran lead to a depreciation of the value of the dollar.

The US dollar is an extremely powerful currency. There are several currencies that are pegged to it. Hence, the decline in the value of the US dollar lead to a proportional decline in the values of the currencies of Bahrain, Cuba, Djibouti, Eritrea, Hong Kong, Jordan, Lebanon, Oman, Panama, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. The majority of countries that have their currencies pegged to the US dollar are major countries in the Middle East, and virtually all of these countries have tense relations with Iran. All of these currencies are facing depreciation due to the Iran nuclear deal, something that will greatly the effect the future of these currencies in relation to the Iranian rial.

An increase in economic activity has also been noticed as a direct result of the lifting of these sanctions. This increase in economic activity is further bolstering the already appreciating Iranian rial, turning it into a strong currency in its own right.