The dollar ended five consecutive gains, but gold reserves rose for the fifth consecutive month at the end of April. Analysts pointed out that the negative impact of bond valuation factors was the main factor that dragged down the small decline of foreign reserves. Capital flows had a relatively small impact on foreign reserves, and the scale of foreign reserves was expected to remain stable in the future.
They believe that the domestic economy is basically well-oriented and the policy is stable. In the future, cross-border capital flows will maintain a basic balance and provide a solid foundation for the overall stability of the size of China's foreign exchange reserves. But US President Trump's recent threats to expand taxation have increased the variables of Sino-US trade negotiations and added uncertainty to cross-border capital flows.
"At the end of April, foreign exchange reserves fell by 3.8 billion US dollars annually, mainly due to the negative impact of bond valuation factors,... Bond valuation factors constitute a certain downward pressure on foreign reserves, while exchange rate valuation factors have little impact on foreign reserves," pointed out Liu Jian, a researcher at the Bank of Communications Financial Research Center.
He also pointed out that in April, the yields of U.S. and European treasury bonds generally rose, the yield of 10-year U.S. Treasury bonds rose from about 2.4% to about 2.5%, and that of the euro zone rose from around 0% to 0.08%. Bond valuation factors exerted a certain downward pressure on foreign reserves. Exchange rate valuation had little impact on foreign reserves. In April, the dollar index rose rapidly and broke through 98, but then rose and fell back, and basically fell back to the level at the beginning of the month in the last three trading days.
In the short run, the impact of cross-border capital flows on foreign reserves is relatively small, and the change of foreign reserves will be mainly affected by valuation factors, and the future volatility is not expected to be too large.
Wang Chunying, spokesman and chief economist of the State Administration of Foreign Exchange, also commented that since this year, in the context of the slowdown in global economic and international trade growth, China's economic operation has maintained a reasonable range, market expectations and confidence have increased, supply and demand in the foreign exchange market have basically balanced, cross-border capital flows through major channels have further improved, and the scale of foreign exchange reserves has remained generally stable.
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