The People’s Bank of China (PBOC) oversees the daily midpoint of the yuan, also called renminbi (RMB). The bank uses a managed float system, allowing the yuan’s value to move within a set range of +/- 2% around a central reference rate. Today, the PBOC set the USD/CNY midpoint at 7.1013, a bit lower than the expected 7.1021. The yuan’s previous close was 7.1142. Additionally, the bank injected 418.5 billion yuan through 7-day reverse repos at an interest rate of 1.40%, resulting in a net injection of 114.5 billion yuan.

Yuan Depreciation Management

The People’s Bank of China is clearly trying to slow the yuan’s decline. By setting the midpoint stronger than expected and firmer than the last close, the bank is expressing concern about the yuan’s recent weakness. This move aims to shape market expectations and prevent a rapid sell-off. This intervention occurs while the interest rate gap between the U.S. and China remains wide. The Federal Reserve’s key rate is above 4.5% throughout 2025. This difference has caused capital outflows and pressured the yuan down for most of the year. The PBOC’s strong midpoint fix is a direct response to these global economic forces. At the same time, the large liquidity injection indicates that supporting the domestic economy is still a priority. Data from August 2025 showed that industrial production growth was weaker than expected, and officials want to ensure that defending the currency does not lead to tighter financial conditions at home. This strategy has successfully balanced priorities during the economic uncertainties of 2022 and 2023.

Trade Implications For Derivative Markets

For traders in derivatives, this managed approach means that betting on a rapidly falling yuan is now riskier. The central bank is signaling it will limit the pace of depreciation, which should reduce implied volatility on USD/CNY options in the short term. This situation makes strategies that benefit from lower volatility, like selling strangles, more appealing. In the coming weeks, we should expect the currency pair to move within a tighter range, with the central bank likely defending the 7.20 level with stronger fixes. This environment highlights trades that take advantage of a lack of sharp movement. It would be wise to cut back on long USD/CNY positions and consider options that better manage risk. Create your live VT Markets account and start trading now.

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