On Wednesday, the People’s Bank of China (PBOC) announced the USD/CNY central rate at 7.0843. This is lower than Tuesday’s rate of 7.0856 and below a Reuters estimate of 7.0962. The People’s Bank of China aims to keep prices and exchange rates stable while promoting economic growth. The bank also works on financial reforms, like improving the financial market.

PBOC’s Role and Leadership

The PBOC is owned by the People’s Republic of China and is influenced by the Chinese Communist Party. Mr. Pan Gongsheng is currently both the CCP Committee Secretary and Governor of the PBOC. The PBOC uses various tools, such as the Reverse Repo Rate, Medium-term Lending Facility, foreign exchange interventions, and Reserve Requirement Ratio. The Loan Prime Rate, which is China’s benchmark interest rate, influences how much people pay for loans and mortgages, as well as interest on savings. This also affects the Renminbi exchange rates. China has 19 private banks, including digital banks like WeBank and MYbank, supported by Tencent and Ant Group. This change occurred in 2014 when private funding was fully allowed in the financial sector. The PBOC has set a stronger yuan than the previous day and market expectations. This move shows its intention to support the currency, indicating a desire for stability and a resistance against depreciation. As a result, the chances of a significant rise in the USD/CNY exchange rate in the upcoming weeks seems lower.

Recent Economic Data and Impact

This policy decision is significant given the economic data from the third quarter of 2025, which reported a slowdown in China’s export growth to just 1.5% year-over-year. Normally, weak trade figures would weaken the currency. The PBOC’s strong fix is a direct response to these economic challenges. This strategy is similar to actions taken in 2023 when the PBOC regularly intervened to control the yuan’s value against the strong US dollar. As the Federal Reserve kept interest rates high throughout much of 2025, capital outflow pressures persisted. The PBOC’s actions show its intolerance for fast currency depreciation. For options traders, this firm guidance should reduce near-term implied volatility in the USD/CNY pair. One-month implied volatility has decreased from 4.5% last week to 4.1%. Traders might consider selling strangles if they believe the central bank will maintain a narrow trading range. This strategy thrives when the exchange rate remains stable, which the PBOC is currently pushing for. Therefore, we should be careful about betting on significant yuan weakness. Selling out-of-the-money call options on the USD/CNY could be a good strategy to take advantage of the ceiling being set by authorities. The change in market sentiment is clear, as one-month risk reversals, which show the difference between call and put options, have dropped to their lowest level since August 2025. Create your live VT Markets account and start trading now.

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