(Yicai Global) July 8 -- Chinese foreign exchange reserves dropped in June, ending two months of gains amid a strengthening US dollar.

Foreign reserves fell to USD3.21 trillion last month, the State Administration of Foreign Exchange said yesterday.

China’s foreign exchange market remained stable with a normal level of currency trades in June, said SAFE spokesperson Wang Chunying. China’s economy is showing good momentum and this will help keep the scale of forex reserves steady despite the continuing challenges to the global economy and international financial markets posed by the pandemic, he added.

The US dollar index rose by 2.9 percent in June, appreciating significantly against the euro, Japanese yen and British pound, said Zhao Qingming, an expert on international financial issues. This probably led to book losses of between USD29 billion and USD1 trillion worth of non-dollar denominated assets in China’s foreign currency holdings, reported The Paper.

As forex reserves are mainly held in the form of bonds, an uptick in bond prices coupled with receipts of investment income, led to a decrease of USD7.8 billion last month, Zhao said.

China's foreign exchange reserves have a solid base, but at the same time, it must be noted that there are still many uncoordinated and uncertain factors in the current global economic recovery, said Wen Bin, chief researcher at China Minsheng Bank.

China should be alert to the risk of the US Federal Reserve reorienting monetary policy ahead of schedule, pay close attention to the impact of the trends of the dollar and US Treasury yields on global repricing of assets and safeguard against shocks caused by volatility in the international markets and large-scale capital flows, The Paper said.

Editor: Kim Taylor