MNI: Yuan Valuation Effect Fuels China FX Reserve Rise in Nov.

--10th Straight Monthly Gain

--Biggest Monthly Gain Since October 2016

     BEIJING (MNI) - China's foreign-exchange reserves increased for the 10th

straight month in November, due largely to a positive valuation effect caused by

the weak performance of the U.S dollar during the month. 

     Foreign-exchange reserves increased $10.06 billion during the month to

$3.119 trillion, the biggest gain since last October and significantly higher

than the $703 million rise in October, according to data from the People's Bank

of China.

     "Major non-dollar currencies appreciated, which resulted in changes of

relevant assets prices, which was the main reason for the increase" in reserves,

the State Administration of Foreign Exchange (SAFE) explained in a statement. 

     The U.S. dollar index fell 1.64% in November, the biggest drop since July,

while the yuan rose 0.25% against the greenback during the month.  

     Liu Jian, foreign exchange analyst with the Bank of Communications, told

MNI that the "valuation effect contributed about CNY14 billion to forex reserves

growth this month. What is more, the rise of the U.S stock market also supported

the increase."

     Cross-border capital flows and transactions were more stable and balanced

in November, SAFE said. 

     The stable momentum of international payments ensured the consecutive

[monthly] growth of the foreign exchange reserves in a fundamental way, SAFE

said. 

     "The slight pickup of U.S government bond yields had a negative impact on

the investment turnover of foreign exchange reserves," a Beijing-based forex

trader at a commercial bank told MNI. 

     However, the size of reserves increases will decelerate as the valuation

effect fades. 

     "The U.S dollar has been boosted by the tax cut progress of the Trump

government. In addition, the Federal Reserve will hike rates again, so the euro

and sterling will fall," Communication Bank's Liu said. "The yields on U.S

government bonds will pick up due to tax reform, which will also put [downward]

pressure on foreign exchange reserves growth."  

     As reform of Chinese exchange rate and interest rate markets is deepened,

market expectations will improve further, so that international payments will

continue to be balanced and help the foreign exchange reserve situation remain

stable in the future, SAFE said.  

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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