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© Reuters. Illustration photo of US dollar and Chinese yuan banknotes
BEIJING / SINGAPORE (Reuters) – China's foreign exchange reserves rose for a fifth straight month in March. The increase has exceeded expectations. Growing optimism about the prospects of a trade deal between China and China has offset fears of a slowdown in economic growth.
Chinese reserves, the largest in the world, rose nearly $ 9 billion in March, reaching $ 3,099 billion, their highest level since last August, Sunday revealed data from the central bank.
Economists polled by Reuters expected reserves to increase by $ 5 billion to $ 3.095 billion.
"The Sino-US trade negotiations strengthened slightly in March, the revised outlook for central banks in Europe and America, as well as the uncertainty surrounding the Brexit … The foreign exchange reserves of China have increased marginally, "said the Chinese currency regulator after the release of the data.
The State Administration of Foreign Exchange Operations (SAFE) added that, as the economy is expected to maintain reasonable growth and greater flexibility in the yuan exchange rate, the country's foreign exchange reserves will remain stable.
The yuan fell 5.3% against the dollar last year, as trade relations with the United States deteriorated and the Chinese economy slowed down. But it has already rebounded by more than 2% in 2019 hoping that Washington and Beijing will reach an agreement to end their deadly trade war.
In March, the yuan lost 0.3% against the dollar due to the strength of the greenback. The dollar was up 1% against a basket of major currencies.
US and Chinese negotiators concluded their last round of trade talks on Friday and were scheduled to resume talks this week in an attempt to broker a deal that would put an end to an unequivocal tariff battle that shook world markets.
However, the outlook for the dollar is expected to remain soft after the US Federal Reserve dropped last month's forecast of further interest rate hikes this year due to signs of a US economic slowdown.
Assuming the dollar remains weak and trade talks progress, the yuan will likely maintain its recent gains and appreciate modestly over the coming year, analysts said in a new Reuters poll. It traded for the last time around 6.72 for a dollar.
US President Donald Trump said Thursday that a trade deal could be announced in the next four weeks. But the US trade office said Saturday that there is still much to do. Discussions should resume this week.
The value of China's gold reserves declined slightly from $ 79.498 billion at the end of February to $ 78.525 billion.
REVERSAL OF FORTUNES?
For most of last year, global investors were worried about the risk of capital flight from China as a result of the downturn in the economy, and discussed the yuan's safety margin, although Strict capital controls make it possible to control the outflows.
More recently, with the dollar in the background, attention has been focused on the upward pressures that Chinese policymakers will be comfortable with as capital inflows into the markets the country's finances seem to have to boost the currency.
Chinese stocks rose more than 20% this year on the hope of a trade deal, while some Chinese bonds were added on April 1 to Bloomberg Barclays (LON 🙂 Global Aggregate Index, one of the most-watched fixed income benchmarks.
UBS Asset Management has estimated that this bond inclusion phase would introduce between $ 250 billion and $ 500 billion of passive money, or even trillions of dollars, if active money was to be counted.
The trend may also be turning for the Chinese economy: the business surveys show that manufacturing activity resumed its growth in March, suggesting that the stimulus measures put in place place by the government are already starting to take root.
If they are maintained, improved economic data could cause markets to reduce expectations of further policy easing, although analysts are still waiting for several further cuts in reserve obligations banks this year, maybe as early as next week.
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