The People’s Bank of China (PBOC) is the central bank of China. It sets the daily midpoint for the yuan’s exchange rate. The bank uses a managed floating exchange rate system, which means the yuan’s value can move within a set range around a central reference rate.

Current Exchange Rate Band

The current trading band allows fluctuations of +/- 2%. Today, the PBOC set the USD/CNY reference rate at 7.1, which is slightly below the estimated rate of 7.1159. The previous closing rate was 7.1188. The PBOC also injected 240.5 billion yuan into the market through 7-day reverse repos at an interest rate of 1.40%. This action resulted in a net drain of 39.5 billion yuan. The central bank seems to be working to slow the yuan’s drop against the dollar. By setting a stronger daily reference rate than the market anticipated, it aims to boost confidence. This suggests that the PBOC is trying to stabilize the yuan around the 7.1 level for now. This move comes as recent economic data from China shows signs of weakness. In Q2 2025, GDP growth was 4.8%, just below the official target. With the US Federal Reserve keeping interest rates high, there is a significant difference in yields between US and Chinese bonds, which is putting downward pressure on the yuan. Even though the liquidity drain is small, it shows the bank’s desire for stability rather than aggressive easing.

Recent Historical Context

We’ve seen similar actions during 2022-2023, when economic pressures were rising. Back then, the PBOC used strong reference rates and other tools to manage the yuan’s decline and prevent speculation. History shows that these interventions can help reduce volatility for a long time. For derivative traders, this means the implied volatility of the yuan may stay low in the short term. Strategies that benefit from stable price movements, like selling out-of-the-money call options on USD/CNY, may do well. The central bank’s involvement makes a sudden rise above levels like 7.2 less likely in the coming weeks. While the long-term trend may still indicate a weaker yuan, taking outright long positions in USD/CNY could be risky since it may go against the central bank’s strategy. A safer approach is to use option spreads that limit risk. This way, traders can maintain a slightly bearish outlook on the yuan while still being protected against the PBOC’s efforts to stabilize prices. Create your live VT Markets account and start trading now.

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