(Yicai) August 8 -- China’s foreign exchange reserves expanded for the second consecutive month in July on a weak US dollar and rising asset prices.

China’s forex reserves stood at USD3.2 trillion at the end of last month, a gain of 0.35 percent from the end of June, according to data released by the State Administration of Foreign Exchange yesterday. This is on par with an Yicai poll of chief economists which forecast July's forex reserves to be around USD3.2 trillion.

The main reasons for the gain were changes in the exchange rate and asset prices, said Wen Bin, chief economist at Minsheng Bank.

In July, the dollar index tumbled 1 percent as the Fed’s interest rate hikes ended and as a result other major currencies appreciated against the greenback. The Japanese yen advanced 1.4 percent, the British pound 1.1 percent and the euro 0.8 percent. Once these currencies were converted into US dollars, this boosted the forex coffers.

The impact of the stock and bond markets on the forex reserves has been offset to some extent, Wen said. The change in forex reserves caused by the balance of payments was within a reasonable range in July. All of this indicates that China’s foreign exchange market is operating stably.

"China’s balance of forex reserves is expected to stabilize around USD3.2 trillion," Zhao Qingming, vice president of China Foreign Exchange Investment Research Institute, told Yicai.

“Exchange rates and asset prices have little impact on the trend of forex reserves because they often have a trade-off. Also, the supply and demand of China's foreign exchange market continues to be balanced, so this will not have a big impact on the reserves,” he added.

Editor: Kim Taylor