The Federal Reserve’s recent rate cut reduces the strength of the US dollar and changes global financial movements. This shift gives Beijing more leeway for its economic policies. Analysts believe this could lead the People’s Bank of China (PBoC) to rethink interest rates or the reserve requirement ratio. However, the PBoC will likely be cautious about when to make such changes to ensure they are beneficial.

Federal Reserve’s Rate Cut

This week’s rate cut by the Federal Reserve allows more flexibility for Beijing and alters global capital flows. It weakens the dollar’s power, which has limited Chinese monetary policy throughout 2024 and early 2025. There is now a greater chance that the PBoC will act to boost its economy, which has seen GDP growth predictions for 2025 lowered to just 4.6% by several major banks. Investors should look to benefit from a rise in Chinese stocks by considering call options on indices like the FTSE China A50. The index has underperformed compared to global markets and is down nearly 4% year-to-date as of September 19, 2025. Any stimulus could lead to a significant rebound. Historical PBoC easing in 2015 and 2019 shows that initial policy announcements often resulted in multi-week market surges. The outlook for the offshore yuan (CNH) is now more complicated, creating chances in currency options. While the Fed’s cut reduces upward pressure on the USD/CNH pair, a possible PBoC move could weaken the yuan, indicating a time of increased volatility. We might consider buying straddles or strangles on USD/CNH to profit from large moves in either direction as the market reacts to these mixed signals.

Expected Demand for Industrial Commodities

We should also expect a rise in demand for industrial commodities if China eases its policies. Copper futures, which reacted to Chinese manufacturing data showing a slight decline last month in August 2025, could receive a significant boost. Purchasing near-term call options on copper or related commodity ETFs offers a direct way to speculate on this potential policy change. Timing is crucial, as any PBoC action is likely to be managed carefully and not happen instantly. This uncertainty is likely to keep implied volatility high for Chinese assets in the next few weeks. Thus, it may be wise to use longer-dated options, perhaps targeting October or November 2025 expirations, to give this policy scenario time to develop. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now