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Pound-Dollar rebounds as Iran signals potential openness to U.S. negotiations.

Ultimately, it will be Iran who decides when this conflict ends.

The pound-dollar exchange rate is off its lows and trades at 1.3365 midweek on hopes that Iran and the U.S. will enter negotiations to end the current conflict.

Financial publications are roundly quoting a report that Iran's Intel Ministry reached out indirectly to the CIA on Sunday to sound out the potential for talks.

"While retrospective, this is new information to the market and could suggest there may be subsequent discussions on de-escalating the conflict," says Sarah Ying, strategist at CIBC Capital Markets.

The dollar surged through Monday and Tuesday as energy prices skyrocketed and global investors opted for the safety of cash.

The GBP/USD convertered as low as 1.3253 on Tuesday and where the market goes next depends on what Iran does next.

"Fighting wars not prosecuted to reach 'unconditional surrender' means that while the U.S. started this phase of its long running conflict with Iran; Iran will decide its end," points out Steven Blitz, an economist at TS Lombard.

"The finite implications for the timeline of this conflict gives support to equity market optimists – always in greater supply than pessimists," he explains.

In short, the U.S. is not going to overthrow the Iranian regime but will continue exacting pain on them until they bend to a new settlement.

That's up to Iran, and markets sense some good news is in the offing.

For pound-dollar, that offers scope for stability and then an eventual recovery.

"Our latest forecasts are based on the assumption that Operation Epic Fury lasts weeks rather than months," says a note from MUFG Bank released Wednesday.

"If this proves correct, USD strength is likely to peak in the near term before reversing from Q2 onwards," it adds.

Elsewhere, there's an interesting pointer from Macquarie out today. Analysts there argue that successful U.S. military interventions can trigger enduring periods of dollar strength.

The findings come amidst market volatility spurred by the U.S. attack on Iran, now in its 5th day.

"History demonstrates that the dollar performs well when the U.S. engages successfully abroad and demonstrates leadership," says Macquarie.

An example cited by researchers is the First Gulf War of 1990-1991, which proved a clear-cut foreign policy success for the U.S. that was subsequently followed "by a decade of success for the USD."