The People’s Bank of China (PBOC) set the USD/CNY central rate at 7.1008 today, which is stronger than the expected 7.1225. This rate can vary within a +/- 2% range due to a managed floating exchange rate system. The yuan closed yesterday at 7.1292. The PBOC also injected 247 billion yuan into the market through 7-day reverse repos at an interest rate of 1.40%. This caused a net decrease of 8.7 billion yuan in the financial system.

Central Bank Signal

Today, the PBOC sent a strong message by setting the yuan’s reference rate much higher than expected. This move is aimed at reversing the recent weakness of the yuan and warns against aggressively betting against it. As a result, there is a greater risk of a quick, policy-driven bounce-back for the yuan. This decision comes even as economic data shows some weakness. For instance, China’s August trade surplus decreased more than expected to $72.5 billion, and industrial production in July 2025 grew by only 3.9% year-over-year. The PBOC’s commitment to supporting the yuan, despite these mixed signals, shows their priority is stability over short-term economic indicators. We saw a similar approach from the PBOC in 2023 and 2024, when they used daily rate fixing to stop the yuan from falling further. During those times, the USD/CNY exchange rate stayed fairly stable for weeks as the market tested the bank’s commitment. We can expect a similar period of controlled trading with less volatility now.

Reducing Bearish Bets

In the coming weeks, we should think about reducing outright bearish bets on the yuan and explore strategies that could benefit from a stable or slightly stronger currency. One effective approach could be selling upside volatility by writing out-of-the-money USD/CNY call options, as the PBOC has indicated a ceiling. Range-bound strategies, such as iron condors, might also be appealing if the currency falls into a narrow trading range. The minor decrease in liquidity from the reverse repo operations supports this position, showing that officials are not overwhelming the market with cheap cash that could be used to bet against the yuan. This highlights their focus on stability over aggressive stimulus for now. We should keep an eye on the spread between onshore and offshore yuan (CNY vs. CNH) to measure the effectiveness of this intervention in the international market. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now