The People’s Bank of China (PBOC) has set the USD/CNY central rate at 7.0197 for Thursday’s trading. This is a small increase from the previous rate of 7.0187. The PBOC makes these adjustments regularly to help manage currency stability and promote economic growth. The PBOC aims to maintain price stability and support economic development through financial reforms. It is a state-owned bank and operates under the direction of the Chinese Communist Party, rather than having an independent governor.

Monetary Policy Tools of the PBOC

Unlike Western central banks, the PBOC uses different monetary policy tools. These include the seven-day Reverse Repo Rate, Medium-term Lending Facility, and Reserve Requirement Ratio. The Loan Prime Rate (LPR) serves as the benchmark interest rate, which influences both market loan rates and savings interest. This, in turn, affects the exchange rate of the Chinese Renminbi. Since 2014, China has allowed the establishment of 19 private banks, like WeBank and MYbank, supported by tech giants such as Tencent and Ant Group. Nevertheless, these banks play a minor role in China’s largely state-driven financial system. The PBOC has nudged the yuan slightly weaker against the dollar, now at 7.0197. This gradual adjustment continues a trend from late 2025, where the authorities preferred a mildly softer currency. This indicates a controlled depreciation instead of a sudden drop. This strategy likely aims to assist China’s export sector, which only grew by 2.8% in 2025. With global demand uncertain and 2026 GDP targets not yet revealed, a weaker yuan can enhance economic competitiveness. We can interpret this currency adjustment as a subtle form of easing monetary policy.

Traders Strategy and Economic Signals

For traders, the PBOC’s strict control means we shouldn’t expect large fluctuations soon. Implied volatility on USD/CNH options is decreasing, recently hitting multi-year lows below 4.5, making long volatility bets costly. This environment favors strategies that capitalize on market direction and the passage of time. Historically, this approach aligns with how the PBOC managed the yuan during difficult economic times in 2024 and 2025. Authorities allowed the yuan to drop below 7.30 to relieve economic pressure but intervened to prevent excessive declines. The current, controlled depreciation above 7.00 suggests a similar strategy. We should look for additional policy clues that might confirm this easing approach, such as reducing the Reserve Requirement Ratio or the one-year Loan Prime Rate. The last cut to the LPR was a modest 10 basis points in October 2025, and the market is beginning to anticipate another reduction before the second quarter. Such a move would further put downward pressure on the yuan. Given the expected gradual rise in USD/CNY, traders might consider selling out-of-the-money CNH put options to earn premiums. Alternatively, they could establish long positions through USD/CNH call spreads for a cost-effective way to gain bullish exposure. These strategies would benefit from a slow, controlled increase in the exchange rate in the coming weeks. Create your live VT Markets account and start trading now.

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