China's forex reserves snap seven-month rise as stronger dollar pressures assets

China's foreign exchange reserves declined in March, snapping a seven-month streak of increases, as a stronger US dollar and falling global asset prices weighed on valuation, official data showed on Tuesday.

The country's foreign exchange reserves stood at $3.3421 trillion at the end of March, down $85.7 billion, or 2.5 percent, from the end of February, said the State Administration of Foreign Exchange.

SAFE attributed the decline to a combination of factors, including changes in global macroeconomic conditions, monetary policy expectations in major economies, a stronger US dollar index, and declines in global financial asset prices. Exchange rate movements and asset price fluctuations jointly contributed to the drop, it said.

Analysts said escalating geopolitical tensions in the Middle East have fueled inflation expectations, sending global financial markets slumping.

Wen Bin, chief economist at China Minsheng Bank, said that markets have even priced in the possibility of further US Federal Reserve rate hikes, supporting strength in the US dollar and reducing the value of non-dollar assets when converted into US dollars.

Looking ahead, Wen said China's strong export performance will continue to underpin the balance of payments and provide solid support for maintaining overall stability in foreign exchange reserves, especially given China's strengths in new energy manufacturing and its comprehensive industrial chain.

SAFE also said China's economy has maintained a stable and improving momentum, with fresh progress in high-quality development, laying a solid foundation for keeping foreign exchange reserves broadly stable.