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Iran's Currency Unexpectedly Rises 10 Percent Pushing Stock Market Lower

File photo - An Iranian woman walks past a currency exchange shop in the capital Tehran, April 24, 2019

The Tehran Stock Exchange (TSE) closed in red on Tuesday, July 16, as investors were set back by the recovery of the national currency rial in the open forex market.

The massive selloff pushed the TSE main index TEDPIX 2.78% lower for the day.

Meanwhile, rial traded at a rate not seen in months against the dollar at 118,000 on Tuesday afternoon local time, up more than ten percent compared to the previous week when traders sold each dollar for 130,000 rials.

It is not clear why the rial rose, given the absence of any economic improvement. The only explanation can be signals coming from diplomatic channels that some sort of compromise might be in the works to reduce tensions between Tehran and Washington.

Fluctuations in currency rates have always been the primary driving force behind the performance of companies in the TSE.

Since many significant companies on the TSE, including steel, petrochemical, and mineral firms, are dependent on exports, the Tehran Stock exchange has always followed the footsteps of the local forex market.

Therefore, whenever the value of the rial drops against the major hard currencies, the revenue of these giant exporter firms, as well as the value of their shares in TSE soars in rials.

Furthermore, along with a soaring dollar, the inflation rate has also rises, leading to skyrocketing prices of these giant firms' products in the local markets and increasing their revenues in rials.

The Iranian rial hit historic lows around 190,000 to the dollar last September, mainly as a result of sanctions imposed by the United States when it withdrew from the 2015 nuclear deal and demanded talks.

"The government officials have repeatedly suggested over the past months that there would be a rebound, insisting that the market would only stabilize if the national currency rises to 80,000 against the dollar," the state-run Press TV, reported on Tuesday.