The People’s Bank of China (PBOC) set the USD/CNY central rate at 7.0103 for Tuesday’s trading session. This is a slight change from the previous rate of 7.0108 and different from the Reuters estimate of 6.9734. The PBOC aims to keep prices stable, including the exchange rate, while supporting economic growth. As a state-owned bank, it is influenced by the Chinese Communist Party, with Mr. Pan Gongsheng in a key leadership role.

Monetary Policy Tools

The PBOC uses several tools for monetary policy, such as the seven-day Reverse Repo Rate, the Medium-term Lending Facility, foreign exchange interventions, and the Reserve Requirement Ratio. The Loan Prime Rate plays an important role in shaping market loan and mortgage rates, as well as savings interest rates, which impacts the Renminbi exchange rate. China allows 19 private banks to operate within its state-dominated financial sector. Among these are WeBank and MYbank, connected to major tech companies Tencent and Ant Group, marking a shift since private banks were started in 2014. Setting the USD/CNY rate at 7.0103, which is significantly weaker than the expected 6.9734, sends a clear message. This indicates that authorities are okay with a weaker Yuan at the start of the year, possibly responding to recent economic data to guide the currency’s path. This action aligns with recent export data; December 2025 saw a 1.5% year-over-year decline, missing forecasts. A more competitive exchange rate is often used to help the export sector. We can expect continued policy support in this direction if trade figures stay weak.

Impact on Currency and Trading Strategy

The interest rate difference with the United States remains a key factor in the Yuan’s weakness. After the Federal Reserve kept rates steady through the end of 2025, the advantage of holding dollars over yuan continues to push USD/CNY higher. The PBOC seems to be allowing the market to reflect this situation in a controlled way. For traders, this presents an opportunity to prepare for further Yuan weakness in the coming weeks. Buying USD/CNY call options with expiration dates in February or March 2026 could be a smart move. This allows participation in a potential increase while defining maximum risk. The central bank actively controlled the currency’s decline throughout 2025, stepping in to prevent excessive volatility around the 7.30 level. While they are permitting weakness now, we should be alert for signs of intervention if the decline accelerates too quickly. The current managed float isn’t guaranteed to stay the same, but the trend appears to lean toward a weaker Yuan. Create your live VT Markets account and start trading now.

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