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China's foreign exchange reserves increased more than expected in June, as growing hopes of a trade war truce with the United States helped ease the downward pressure on the Chinese currency.
The yuan was very sensitive to the evolution of the Sino-US trade dispute that lasted a whole year and that exacerbated the pressure on the slowdown of the Chinese economy.
The country's foreign exchange reserves – the largest in the world – rose by $ 18.23 billion in June to reach $ 3.1 billion, according to data from the People's Bank of China (PBOC) on July 8.
Economists polled by Reuters were expecting the country's reserves to grow $ 2 billion from May to $ 3.103 billion.
The yuan rose 0.6% against the dollar in June, marking its first monthly gain since February.
The increase in June is explained by changes in currency conversion rates and badet prices, the foreign exchange regulator said in a statement issued after the data was released.
The yuan rebounded sharply last month, hoping the US and Chinese leaders would agree to a commercial ceasefire while attending the G20 leaders summit in Japan. After the talks ended in May, both sides increased tariffs on their respective goods and Washington had again threatened.
At the summit, Presidents Donald Trump and Xi Jinping agreed to resume trade negotiations. Trump has proposed concessions that do not include new taxes or looser restrictions on technology giant Huawei.
Although current rates have remained unchanged, the latest Reuters positioning poll showed that bearish paris on the yuan had more than halved over the past two weeks.
The change in sentiment has attracted foreign investors to Chinese equities and bonds, providing additional support to the yuan. Foreign investors bought Chinese government bonds at the fastest pace since the beginning of the year, which allowed their sovereign debt holdings to reach a record high.
LOWER DOLLAR
The yuan, like many other emerging market currencies, has also been buoyed by the weaker US dollar in the face of growing expectations from the US Federal Reserve that will soon begin to lower its interest rates to support the slowdown in the economy.
Some badysts believe that the PBOC could soon follow if the Fed starts lowering rates, among signs that the Chinese economy continues to lose momentum. The central bank has already quietly lowered short-term borrowing rates for months.
Business surveys showed that the first readings in June had been weaker than expected, as the activity of factories was contracting and the growth of the service sector was slowing down, underlining the need to further stimulate the stabilization of the industry. 39; economy.
Analysts predict that China's economic growth in the second quarter has further slowed from 6.4% in the first quarter. The data will be published on July 15th.
Prime Minister Li Keqiang said last week that the economy was facing further downward pressure and that policymakers would use banks' reserve cut-offs in time, fueling market expectations for further easing. politics.
Until now, the stringent capital controls put in place since the last slowdown of 2015-2016 have largely mastered the outflows over the past year, despite increasing external and domestic pressure on the economy. economy.
The value of China's gold reserves climbed to $ 87.27 billion, up from $ 79.83 billion at the end of May.
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