The People’s Bank of China (PBOC) set the USD/CNY reference rate at 6.9843 on Monday. This is a small drop from the previous rate of 6.9929. The PBOC’s goals are to keep prices stable, manage exchange rates, and support economic growth. The PBOC is a state-owned bank in the People’s Republic of China. It uses several tools, including the Reverse Repo Rate, Medium-term Lending Facility, and Reserve Requirement Ratio, to achieve its goals.

Private Banking in China

China has 19 private banks, with major players like WeBank and MYbank, supported by tech leaders Tencent and Ant Group. In 2014, the Chinese government allowed private capital to fund domestic banks in a mostly state-run financial sector. Recently, the PBOC set a stronger daily reference rate for the Yuan, moving below the important 7.00 level against the US dollar. This action might lead to less upward pressure on the USD/CNY pair soon. Traders dealing in derivatives should pay attention to this guidance, as it often comes before further gains for the Yuan. This strategy seems to be backed by strong domestic data. China’s GDP growth for the fourth quarter of 2025 exceeded expectations at 5.5%. Additionally, industrial production in December 2025 showed unexpected growth, indicating a robust economy as it enters the new year. A stronger currency helps China manage inflation risks from this growth and reduces import costs.

Global Economic Conditions

The Yuan’s strength is notable even with global uncertainties, shown by gold prices rising over $5,050 an ounce due to geopolitical risks. Normally, this would boost the US dollar as a safe option, but the PBOC’s actions indicate a different trend. Traders may want to think about strategies focusing on the Yuan’s strength against other currencies, not just the dollar. This approach echoes the strategy seen in the third quarter of 2025, when the central bank consistently strengthened the currency to attract foreign investment. Given this pattern, buying put options on USD/CNY could be a good way to manage risk while preparing for further declines. We expect more volatility in this pair, making options a useful tool in the coming weeks. Create your live VT Markets account and start trading now.

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