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China foreign exchange reserves in February reach six-month high

by Paul
China foreign exchange

China February forex reserves rose to their highest in six months

China’s foreign exchange reserves in February rose to their highest in six months as growing optimism over U.S.-China trade talks buoyed the Yuan currency, easing worries about capital outflows from the slowing economy.

While China’s economy continues to cool, analysts believe the risk of strong capital outflows has greatly diminished in recent months as the Yuan regained its footing and foreign investors piled back into the country’s battered stock markets.

Chinese foreign exchange reserves, the world’s largest rose by $2.26 billion in February to $3.090 trillion, central bank data showed on Thursday, marking the highest level since August 2018.

The Yuan gained 0.09 percent against dollar in February, and is up more than 2 percent so far this year. The dollar index against other major currencies rose 0.6 percent in February.

Financial markets’ bearish outlook on the Yuan has seen a remarkable reversal in the last few months due to a host of factors including growing optimism for a U.S.-Sino trade agreement, a soft U.S. dollar and a sharp rise in foreign investors’ inflows into Chinese stocks and bonds.

A Reuters poll on Wednesday showed the Yuan is expected to trade around current levels of 6.70 to the dollar in a year’s time, in sharp contrast to January when most analysts forecast it would drop through the 7-mark to decade lows.

As part of a possible trade deal, Washington is reportedly pressing China for a promise that it will not devalue its currency, which has further underpinned the Yuan.

A source briefed on the trade negotiations said on Sunday that the world’s largest economies appear close to an agreement that would roll back U.S. tariffs on Chinese goods, as Washington urges China to make structural economic changes and eliminate retaliatory tariffs on U.S. goods.

China’s state planner pledged on Tuesday to increase the flexibility of the Yuan’s exchange rate, setting off speculation that a tweak to official wording could mean changes to its tightly managed currency regime.

China’s economic growth cooled to 6.6 percent in 2018, the slowest pace in 28 years, and is widely expected to lose more momentum this year.

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