The People’s Bank of China (PBOC) determines the daily midpoint for the yuan (renminbi) within a managed floating exchange rate system. This system allows the yuan to vary within a +/- 2% range from a central reference rate. The last closing value was 7.1500, but the new USD/CNY rate is 7.1063. This is the strongest value for the yuan since November 6 of last year.

PBOC’s Market Intervention

Recently, the PBOC added 416.1 billion yuan to the market through 7-day reverse repos at an interest rate of 1.40%. With 253 billion yuan maturing today, that results in a net injection of 163.1 billion yuan. Today’s action by the central bank clearly shows their stance against any further weakness in the yuan. By setting the midpoint at 7.1063, significantly stronger than the last market close of 7.1500, they aim to push the currency higher. This is a strong signal from policymakers. For those trading derivatives, shorting the yuan is now a riskier move in the short term. The strong fixing suggests that implied volatility on USD/CNH options might increase, as the market adjusts for possible risks in both directions, rather than just a decline. It’s important to consider strategies that take advantage of a stable or slowly appreciating currency. This policy change follows reports from July 2025 of ongoing capital outflows, a trend we’ve seen throughout much of this year. By indicating a stronger yuan, authorities likely hope to boost confidence and discourage speculative moves against the currency. We’ve noticed similar strong fixings during market stress in 2023 to prevent steep depreciation.

Monetary Policy and Market Impact

The simultaneous injection of 163.1 billion yuan into the banking system shows that the overall monetary policy is not tightening. This indicates that maintaining currency stability is the main goal, rather than slowing down the domestic economy, which experienced a GDP growth decrease to 4.8% in the second quarter. They’re ensuring that local markets have enough cash while defending the exchange rate. In the upcoming weeks, we expect the PBOC to continue using the daily midpoint to limit any notable movements toward yuan weakness. Traders should closely monitor the 2% band around the fixing, as selling USD/CNY call options with strikes near the upper limit could be a good strategy. This approach bets on the central bank’s success in defending the desired currency level. Create your live VT Markets account and start trading now.

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