On Monday, the People’s Bank of China (PBOC) set the USD/CNY central rate at 7.1007. This is slightly lower than Friday’s rate of 7.1048 and different from Reuters’ estimate of 7.1210. The PBOC aims to keep prices stable, including exchange rates, while also promoting economic growth and pushing for financial reforms to develop China’s financial market.

The Role Of The PBOC

The PBOC is owned by the People’s Republic of China and is guided by the Chinese Communist Party Committee Secretary. Currently, Mr. Pan Gongsheng holds both the governor and Committee Secretary roles. The PBOC uses various policy tools, such as the Reverse Repo Rate, the Medium-term Lending Facility, foreign exchange interventions, and the Reserve Requirement Ratio. The Loan Prime Rate, which is a benchmark interest rate, affects both loan and mortgage rates, as well as the Renminbi’s exchange rates. China has 19 private banks, like WeBank and MYbank, which began operating in 2014. However, these banks make up a small part of the mainly state-controlled financial sector. The People’s Bank of China recently set the yuan fixing stronger than expected, showing a clear intention to support the currency. This move on October 13, 2025, indicates that the central bank is actively working against depreciation pressure. Traders should interpret this as a sign that authorities are prioritizing stability in the exchange rate over market-driven fluctuations in the yuan’s value.

Market Impact And Implications

This intervention occurs as China’s GDP growth for Q3 2025 is a modest 4.8%. Recent industrial output also showed a slight slowdown. Meanwhile, the US dollar remains strong, largely due to US inflation data from September 2025, reported at 3.5%, which keeps the Federal Reserve on alert. This situation creates a conflict where the PBOC is trying to manage economic challenges while maintaining control over the yuan. For derivative traders, this managed environment suggests that implied volatility in USD/CNH options may be overpriced. The central bank’s firm stance is expected to limit any sudden increases in the currency pair in the near future. We believe selling short-dated strangles may be a useful strategy to take advantage of the calm price action. Looking ahead, we should monitor any adjustments in the PBOC’s other policy tools, including the Medium-term Lending Facility (MLF) rate, which will be addressed later this week. If economic data continues to weaken, authorities may have to consider an interest rate cut, which could again put pressure on the yuan. Such a decision would test the central bank’s commitment and may signal a change in their current currency approach. This strategy of using strong fixes to counter market weakness is familiar. We saw it during the economic challenges of 2023 and 2024 when the PBOC successfully slowed depreciation by consistently setting stronger daily rates than expected. Therefore, traders should be cautious when taking large positions betting on yuan weakness, as the central bank has a track record of defending key psychological levels. Create your live VT Markets account and start trading now.

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