Taiwan Central Bank Confirms June Forex Intervention as Reserves Decline

Taiwan's central bank intervened in the foreign exchange market in June, an action that contributed to a decline in the island's foreign currency reserves. According to a statement from the monetary authority, the country's reserves fell to $597.15 billion at the end of the month.

Intervention Details

The central bank attributed the monthly change in its reserves to a combination of factors, including investment returns, exchange rate fluctuations of other currencies against the US dollar, and its direct intervention activities. The bank's actions are typically aimed at smoothing volatility in the Taiwan dollar.

For context on the scale of its recent operations, the central bank's statement also noted that its net foreign exchange sales totaled $12.593 billion during the first quarter of the year.

Impact of a Stronger Dollar

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Eugene Tsai, head of the central bank’s foreign exchange department, explained the key drivers behind the reserve decline at a briefing in Taipei. He cited the bank's net selling of foreign currency in June and a relatively large depreciation of non-US currencies as the primary causes.

Tsai noted that the market perceived the US Federal Open Market Committee’s June meeting as "relatively hawkish," which strengthened the US dollar. This dynamic increased pressure on regional currencies and influenced the central bank's selling prices in the market.

Market Outlook

Looking ahead, Tsai suggested that the Federal Reserve will likely keep interest rates unchanged in September, pointing to easing inflation and a moderating US labor market. He added that if the US dollar's strength subsides, market participants may become more willing to sell foreign currency, potentially reducing pressure on the Taiwan dollar.