The Iranian rial rallied against the US dollar, after the signing of an agreement between Iran and Saudi Arabia on Friday that restored diplomatic ties severed seven years ago.
Iran's currency surged by about 21 per cent since hitting a record low of about 583,500 against the greenback on February 27 and was trading at an average of 458,500 against the US dollar as of Sunday, according to the website Bonbast that tracks the rial.
The rial plunged after the US unilaterally withdrew in 2018 from a milestone nuclear deal, known as the Joint Comprehensive Plan of Action, which Washington had struck together with the EU, Russia, China and Iran in 2015.
The Iranian currency continued to fall as the US, under the presidency of Donald Trump, tightened sanctions against Tehran.
Western countries also stepped up pressure on Iran over its recent crackdown against anti-government protests.
The EU, UK and US imposed additional sanctions on several senior Iranian officials and the Islamic Revolutionary Guard Corps.
Amid mounting pressure and economic isolation, Iran imposed restrictions last month on foreign currency sales after a rush on euros and dollars weakened the rial to a record low against the greenback.
The Central Bank of Iran scrapped a programme that allowed people to buy up to €5,000 ($5,324) a year from authorised sellers and replaced it with a stricter annual limit of €500 for air passengers, according to the Tasnim news agency.
The agreement between Saudi Arabia and Iran was a positive “diplomatic shock” to the currency market, the Tehran-based newspaper Donya-e-Eqtesad said on Sunday.
The agreement came after talks between the two countries, held from March 6-10 and hosted by China, according to a communique released by the three nations.
A deal with the International Atomic Energy Agency earlier this month that allows the agency to resume monitoring activities of Iran's uranium enrichment activities has also helped the rial rebound from record lows against the dollar.
As part of the agreement with the nuclear watchdog, Iran will provide further information and access to address outstanding concerns about safeguards related to its uranium enrichment programme.
The agreement with the IAEA came after the agency reported that uranium particles enriched up to 83.7 per cent had been found at an underground nuclear site in the country.
In a statement last week, the US said Iran’s continued production of uranium enriched up to 60 per cent "has no credible peaceful purpose" and that "no other country" uses uranium enriched to 60 per cent for the purpose Iran claims.
Under the 2015 JCPOA agreement, Iran agreed to remove its stockpile of medium-enriched uranium, reduce its pool of low-enriched uranium by 98 per cent and cut its gas centrifuges for 13 years by about two-thirds.
As part of the agreement with the IAEA that had been put in place under the 2015 nuclear deal, Tehran will now allow the reinstallation of monitoring equipment, which it removed last year.