Core Viewpoint - In May, the overall balance of foreign exchange supply and demand in China remained stable, with a net inflow of cross-border funds amounting to 33 billion USD from non-bank sectors such as enterprises and individuals [1] Group 1: Foreign Exchange Market Performance - In May, the net inflow of funds from goods trade remained at a high level, and foreign investment in domestic stocks increased compared to the previous month [1] - The foreign exchange statistics showed that in May, banks settled 192.7 billion USD and sold 181.4 billion USD [1] - The foreign exchange market operated smoothly, with banks' foreign exchange settlement and sales turning into a surplus [1] Group 2: Cross-Border Fund Flows - The net inflow of cross-border funds from non-bank sectors was 33 billion USD [1] - The overall outflow from service trade, foreign investment enterprise dividends, and direct foreign investment remained stable [1] - The foreign exchange income for clients was 622.7 billion USD, while foreign payments amounted to 589.7 billion USD [1] Group 3: Market Expectations and Economic Context - Market expectations remained stable in May, with a rational and orderly trading environment [1] - The demand for foreign exchange purchases decreased, while the willingness of enterprises and individuals to settle foreign exchange remained stable [1] - The overall economic situation in China is stable and progressing, providing strong support for the healthy operation of the foreign exchange market [1]

Report Industry Investment Rating - Not provided in the given content Report's Core View - In June, the uncertainty of US trade policy continued to ease, and Sino-US economic and trade consultations made new progress. With the increasing expectation of the Fed's interest rate cut, the US dollar index continued to decline with an enlarged decline, the RMB bilateral exchange rate gradually appreciated, and the multilateral exchange rate continued to weaken. This helps enhance the competitiveness of China's export products, but attention should be paid to the international community's attention and even speculation on China's currency issues [2]. - Against the backdrop of the easing of Sino-US economic and trade conflicts in June, the net inflow of cross - border funds slowed down, mainly due to the small net outflow of securities investment and the expansion of the net outflow scale of income and current transfers. However, thanks to the strong resilience of China's foreign trade exports, the surplus of goods trade receipts and payments increased month - on - month, reaching a record high for the same period, and continued to play a stabilizing role in cross - border capital flows [2]. - In June, bank settlement and sales of foreign exchange showed a surplus for the fourth consecutive month, and the surplus scale expanded month by month. In May and June, the market's on - the - spot settlement willingness and purchase motivation both decreased, and the purchase motivation was relatively stable, indicating that the market's expectation of the RMB exchange rate continued to diverge, and the demand for foreign exchange purchase at low prices was relatively strong [2]. Summary According to Related Catalogs 1. Exchange Rate Situation - In June, the US trade policy uncertainty continued to ease, and Sino - US economic and trade consultations achieved new progress. After the leaders' phone call on June 5, the first meeting of the Sino - US economic and trade consultation mechanism was held in London from June 9 - 10, reaching a principled framework, and on June 27, the details of the framework were further confirmed [3]. - In June, the US dollar index continued to decline since February, dropping to 96.8 at the end of the month, a new low since March 2022. The monthly decline expanded from 0.2% last month to 2.7%, with a cumulative decline of 2.0% in late June. The expectation of the Fed's interest rate cut increased. The market expected the probability of three interest rate cuts by the Fed within the year to exceed 50% [4]. - In June, the RMB exchange rate continued to appreciate slowly. The appreciation of the central parity rate expanded from 0.2% last month to 0.4%, while the appreciation of on - shore and off - shore spot exchange rates narrowed from 0.9% last month to 0.4% and 0.7% respectively. The divergence of the "three prices" of the RMB exchange rate continued to converge [4]. - The three major RMB exchange rate indices all declined. The CFETS RMB exchange rate index and the RMB exchange rate index referring to the BIS currency basket fell for the sixth consecutive month, with the month - on - month decline expanding from 0.2% and 0.5% last month to 0.6% and 0.9% respectively; the RMB exchange rate index referring to the SDR currency basket turned from rising to falling, with a month - on - month decline of 0.9% [5]. 2. Cross - border Capital Flows - In June, the surplus of banks' foreign - related receipts and payments on behalf of customers continued for the fifth consecutive month, but the surplus scale decreased by $7.7 billion month - on - month to $25.3 billion. The RMB foreign - related receipts and payments on behalf of customers turned from a surplus of $2.6 billion last month to a deficit of $21.6 billion, contributing 316% to the narrowing of the surplus. The foreign - currency foreign - related receipts and payments on behalf of customers continued to have a surplus, increasing by $16.6 billion month - on - month to $47 billion, a new high since October last year [10]. - In June, securities investment foreign - related receipts and payments turned from a surplus of $5.2 billion last month to a deficit of $5.6 billion. Overseas institutions continued to reduce their holdings of RMB bonds, with the balance of bonds held decreasing by 116.1 billion yuan, an increase of 19.8 billion yuan from last month. However, foreign investors' willingness to increase their holdings of domestic stocks increased. In the first half of the year, foreign investors net - increased their holdings of domestic stocks and funds by $10.1 billion, and the net - increase scale in May and June reached $18.8 billion [11][12]. - In June, the deficit of income and current transfers expanded for the fourth consecutive month to $26.9 billion. The surplus of goods trade foreign - related receipts and payments increased by $7.6 billion month - on - month to $66.8 billion, reaching a record high for the same period. The deficit of service trade narrowed for the fifth consecutive month to $8.1 billion, the lowest since July 2023. The deficit of direct investment narrowed for the second consecutive month to $2.7 billion, the lowest since November last year [12]. 3. Bank Settlement and Sales of Foreign Exchange - In June, bank settlement and sales of foreign exchange (including forward and options) showed a surplus for the fourth consecutive month, and the surplus scale increased by $6.7 billion month - on - month to $32.1 billion. The surplus of bank settlement and sales of foreign exchange on behalf of customers increased by $8.3 billion to $25.6 billion, the deficit of banks' own settlement and sales of foreign exchange narrowed for the second consecutive month, and the net purchase scale of forward and options foreign exchange derivatives continued to decline [20]. - From May to June, the surplus of banks' foreign - currency foreign - related receipts and payments on behalf of customers and the surplus of bank settlement and sales of foreign exchange on behalf of customers continued to expand, and the gap between them widened. The market's overall settlement willingness and purchase motivation both decreased, indicating that the market's expectation of the RMB exchange rate continued to diverge, and the demand for foreign exchange purchase at low prices was relatively strong [21]. - In June, the settlement willingness of foreign trade enterprises and the household sector increased, and the purchase motivation decreased. The forward settlement hedging ratio ended its five - month upward trend, and the forward purchase hedging ratio stopped falling and rebounded, indicating that relevant market players' exchange rate expectations were biased towards depreciation [25].