On Thursday, the People’s Bank of China (PBOC) set the USD/CNY central rate at 7.0865, down from the previous day’s rate of 7.0901. This new rate is lower than the 7.1222 that Reuters had predicted. The PBOC aims to keep prices stable, including exchange rates, and to support economic growth. It also focuses on financial reforms, especially in developing the financial market.

Structure Of The PBOC

The PBOC is state-owned and operates under the influence of the Chinese Communist Party. The State Council Chairman nominates the Committee Secretary, who plays a key role in the bank’s management. The PBOC uses several tools, including the Reverse Repo Rate, Medium-term Lending Facility, and foreign exchange interventions. The Loan Prime Rate is China’s standard interest rate, affecting loans, mortgages, and savings rates in the market. China has a small number of private banks, with 19 currently operating. The largest are digital lenders WeBank and MYbank, which are backed by tech firms Tencent and Ant Group, respectively. In 2014, China allowed privately funded banks within the state-controlled financial system. The stronger central rate fixing of 7.0865 suggests the government’s intention to strengthen the Yuan against the US dollar. The PBOC appears to be countering market expectations for weakness, setting a new tone for the coming weeks. This seems like a strategic move to maintain currency stability.

Economic Indicators And Market Implications

This action aligns with recent signs of economic stability in China. In October, the official manufacturing PMI was reported at 50.8, marking the third month of expansion and exceeding forecasts. With Q3 2025 GDP growth steady at 4.8%, authorities seem more confident about allowing the currency to appreciate gradually. For derivative traders, this indicates that the implied volatility in USD/CNY options may be overestimated. The PBOC’s firm guidance may limit any significant increase in the currency pair, making it more attractive to pursue strategies that favor steady trading ranges or a gradual downward trend. Selling out-of-the-money call options on the USD/CNY could be a good way to earn premium. Looking back, this situation is a sharp contrast to the continuous Yuan weakness seen throughout 2023 and 2024, when the central bank allowed the currency to weaken to support exports. The PBOC has held its key policy rates, like the 1-year Medium-term Lending Facility rate, steady at 2.45% for the past two quarters. This steady approach shows a focus on stability rather than further stimulus. This stance coincides with the US Federal Reserve signaling a prolonged pause in its own rate cycle, as US inflation has eased to 2.5% year-over-year. The contrasting messages from central banks could increase downward pressure on the USD/CNY pair. This overall economic picture strengthens the technical signals from today’s rate fixing. Traders should consider preparing for a lower USD/CNY rate, but within a narrow range set by the central bank. Buying put spreads on USD/CNY could effectively express this view with controlled risk. This strategy allows for gains from a slight decrease in the exchange rate while being shielded from unexpected policy changes. Create your live VT Markets account and start trading now.

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