China’s foreign exchange reserves rose USD 21.6 billion to USD 3.16 trillion in the month of January. This is the 12th straight monthly rise, reflecting a combination of factors from unfavorable valuation to tight capital flow measures, noted DBS Bank in a research report.
Euro had appreciated 3.4 percent against the U.S. dollar last month, adding around USD 20 billion to the stockpile. In order to avert irrational outbound investment, the China Insurance Regulatory Commission announced in January that insurance firms’ shareholders are not permitted to interfere in the operation of insurance funds. Measures to lower leverage would also be introduced. According to DBS Bank, foreign reserves are expected to remain widely stable in 2018. Inflows into the onshore bond market and sentiment in the economy have raised the yuan up 4 percent YTD against the US dollar.
Certain downward pressure in the yuan exchange rate is anticipated if the global markets continue to be volatile. Aside from safe haven bids in the U.S. dollar, it would discourage interbank rates from rising in China.
“Even so, don’t expect a disruptive depreciation due to the strong enforcement of capital flow measures and the prominent presence of state-owned banks to smoothen volatility in the forex market”, added DBS Bank.
At 17:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was neutral at 4.50761, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 105.961. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex
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