The People’s Bank of China (PBOC) has set the USD/CNY central rate at 7.0856 for the next trading session, up slightly from 7.0816 the previous day. This rate is lower than the 7.1096 predicted by Reuters. The PBOC’s role is to keep prices and exchange rates stable while encouraging economic growth. It is a state-owned bank influenced by the Chinese Communist Party, with Mr. Pan Gongsheng as its current leader.

Monetary Policy Tools

The PBOC uses various monetary policy tools, including the seven-day Reverse Repo Rate, the Medium-term Lending Facility, foreign exchange interventions, and the Reserve Requirement Ratio. The Loan Prime Rate serves as the main benchmark interest rate. It affects interest rates for loans, mortgages, savings, and the Renminbi’s exchange rate. In China’s banking system, there are 19 private banks, which represent a smaller share of the overall financial landscape. Notable digital lenders such as WeBank and MYbank, backed by Tencent and Ant Group, are among these banks. Since 2014, the government has allowed privately funded banks to operate within the mainly state-controlled financial sector. Today’s stronger USD/CNY fix from the central bank shows its intent to support the yuan. This move is a clear attempt to prevent excessive weakness in the currency. It indicates that the PBOC is working to establish a limit on further depreciation, helping to create a potential short-term floor for the yuan. This decision comes as we review the most recent economic data for October 2025. It revealed that both industrial production and retail sales fell short of expectations. Ongoing issues in the property sector and weak consumer demand continue to hinder growth prospects. The PBOC faces the challenge of balancing the need for economic stimulus, which can create a weaker currency, with the need for financial stability.

External Economic Challenges

Additionally, we must account for external pressures from a strong US dollar, as the Federal Reserve has kept a hawkish approach throughout 2025. The latest US Consumer Price Index (CPI) for October showed a figure of 3.5%, reinforcing the belief that US interest rates will stay high into 2026. This disparity in interest rates naturally attracts investment to dollar-denominated assets, putting downward pressure on the yuan. For traders, this situation creates an interesting dynamic between fundamental pressures and government policy, suggesting increased short-term volatility. We should expect the spot USD/CNH rate to fluctuate, testing both the central bank’s stance and the market’s pessimistic outlook. Therefore, strategies that benefit from rising implied volatility, such as long straddles, might be favorable in the upcoming weeks. Reflecting on similar times in 2023 and 2024, we saw that strong fixings by the PBOC can limit the upside for USD/CNY for a period. The central bank’s defense is expected to remain robust, especially as we approach the year’s end, hinting at a range-bound market. A significant break above the 7.15 level in the offshore market (USD/CNH) now appears less likely without a major new trigger. Create your live VT Markets account and start trading now.

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