The People’s Bank of China (PBOC) set the USD/CNY reference rate at 7.0856, down from 7.0881. This change was lower than the Reuters estimate of 7.1029. The PBOC aims to keep prices stable and boost economic growth. It also works on financial reforms to develop and open the financial market.

Central Bank Structure

The PBOC is state-owned and strongly influenced by the Chinese Communist Party. Mr. Pan Gongsheng serves as both the CCP Committee Secretary and Governor. The PBOC uses a variety of monetary policy tools, unlike Western economies. These tools include the seven-day Reverse Repo Rate, Medium-term Lending Facility, foreign exchange interventions, and Reserve Requirement Ratio. The Loan Prime Rate is the main interest rate, affecting loans, mortgages, and savings. There are 19 private banks in China, but the financial sector is mainly state-controlled. The two largest private banks, WeBank and MYbank, are backed by tech giants Tencent and Ant Group. Since 2014, fully private domestic banks can operate. Today’s stronger Yuan rate from the PBOC is a clear indication that the central bank is managing the currency’s value to counter market pressures that could weaken it. This shows their commitment to stability.

Yuan Stability Signal

This action comes as the economy shows mixed recovery signs. In the third quarter of 2025, GDP growth was a modest 4.9%, while recent export figures dropped over 6% year-on-year. A stable currency helps prevent capital outflows and boosts confidence, especially when economic data isn’t strong. We have seen this approach before, especially during economic challenges in late 2023 and early 2024. Back then, the PBOC consistently fixed the daily rate stronger than market expectations to control the Yuan’s decline against a strong US dollar. This suggests that the current policy is a long-term strategy, not just a short-term reaction. For derivative traders, the reinforced ceiling on the USD/CNY pair makes selling call options or implementing bear call spreads appealing. With the central bank limiting volatility, there’s a higher chance of keeping the premiums from these options. We can expect that implied volatility for the pair will likely decrease soon. This move also affects equity derivatives. A stable Yuan often attracts foreign investment and calms local markets. This could provide support for Chinese equity indices, making it a good time to consider purchasing call options on ETFs that track the FTSE China A50 Index. Thus, we should not see this as a sign of a major Yuan surge, but rather as a way to maintain a trading range. In the coming weeks, we should focus on strategies that benefit from low volatility and a capped upside in the USD/CNY rate. The daily fix will be our key indicator of the central bank’s intentions. Create your live VT Markets account and start trading now.

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