The People’s Bank of China (PBOC) has set the USD/CNY midpoint at 7.1287, which is higher than the expected 7.1748. The yuan uses a managed floating exchange rate system, allowing its value to change within a +/- 2% range from this midpoint. The previous closing rate for the yuan was 7.1834. The central bank plays a key role in setting this midpoint to keep the currency stable.

Central Bank’s Strong Signal

The much stronger yuan fixing at 7.1287 sends a clear message from the central bank. This action aims to stop the yuan’s recent decline and sets a boundary against further weakness. Those betting against the yuan now face increased risks in the coming weeks. This strong defense follows recent reports showing that China’s industrial production for July 2025 increased by only 3.1%, which fell short of expectations and raised concerns about the economy. Additionally, the US Federal Reserve has indicated it will maintain a strict monetary policy, adding pressure on the yuan. The PBOC is clearly countering these market forces. Given this strong signal, now might be a good time to sell short-dated call options on USD/CNY. The central bank has essentially put a temporary cap on the exchange rate, making it unlikely to rise significantly in the near term. This strategy could benefit from the expected drop in upward volatility.

Historical Context

We’ve seen similar tactics before, especially in late 2023 when the PBOC used strong fixes to defend the 7.30 level. History shows that when the central bank takes such decisive action, it can maintain this position for weeks or even months. This historical pattern suggests we shouldn’t expect a quick return to yuan weakness. For those looking to follow the central bank’s direction, buying put options on USD/CNY could be a smart move. This approach allows investors to profit from a possible further rise in the yuan, as guided by the PBOC’s strong intervention. It’s a direct bet that the PBOC will successfully push the exchange rate lower. Create your live VT Markets account and start trading now.

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