The People’s Bank of China (PBOC) has set the USD/CNY reference rate at 7.1188, much lower than the expected rate of 7.1670. The PBOC controls the yuan’s value by setting a central reference rate, allowing it to fluctuate within a 2% range. The last closing rate for the yuan was 7.1548. Today, the PBOC added 405.8 billion yuan through 7-day reverse repos at an interest rate of 1.40%.

Liquidity Management

Today, 580.3 billion yuan matured, resulting in a net liquidity drain of 174.5 billion yuan. This action shows the bank’s efforts to manage liquidity in the financial system. On August 26, 2025, the PBOC sent a strong signal. The daily yuan fix is much stronger than expected, indicating that the central bank is actively fighting against yuan weakness. This marks a clear stance against further depreciation. This action follows a time of pressure on the yuan, especially after China’s export data for July 2025 showed a 5.2% year-on-year decline, worsening from the previous month. Earlier this month, the USD/CNY spot rate was nearing 7.18, a high not seen since late 2024. The central bank is clearly reacting to this trend.

Market Implications

For derivative traders, this means short-term implied volatility will likely rise significantly. Such a big difference from estimates creates uncertainty and will lead to wider price fluctuations in the upcoming sessions. We should expect the cost of options to increase as a result. Betting against the yuan has become a much riskier move. The PBOC is signaling it will not tolerate excessive weakness, making short CNH positions more susceptible to sudden policy changes. The small net liquidity drain also adds to this by making it a bit more expensive to short the currency. We’ve seen this strategy before, especially throughout 2023 when the central bank frequently stepped in with strong fixes to manage the yuan’s value against a stronger US dollar. History suggests the PBOC may keep this aggressive approach for several weeks to stabilize market expectations. This makes selling USD/CNY call options or buying short-term put options a strategy worth considering. Create your live VT Markets account and start trading now.

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