The People’s Bank of China (PBOC) has set the daily midpoint for the Chinese yuan at **7.1072** against the US dollar. This rate is stronger than the estimated **7.1281**. The previous closing rate was **7.1304**. The PBOC uses a managed floating exchange rate, allowing the yuan to change within a **±2% range** around the central rate.

PBOC’s Injection

The PBOC also injected **182.7 billion** yuan into the market using **7-day reverse repurchase agreements** at an interest rate of **1.40%**. However, with **288.4 billion** yuan maturing today, this results in a net drain of **105.7 billion** yuan. On September 1, 2025, the central bank delivered a strong message by setting the yuan’s reference rate significantly better than expected. This indicates that they will not accept excessive weakness in the currency, actively countering the market’s previous weaker closing level. At the same time, draining **105.7 billion** yuan from the financial system makes holding yuan slightly more expensive, discouraging bets against it. This two-pronged strategy is a clear effort to support the yuan. This robust defense comes as the latest **Caixin Manufacturing PMI** for August 2025 fell to **49.7**, showing slight contraction and heightening economic growth worries. The firm stance on the currency aims to prevent capital outflows and maintain stability amidst this weak economic data. We should expect this pattern to continue as long as growth data remains sluggish.

Implications for Derivative Traders

For derivative traders, this suggests that implied volatility on the USD/CNY pair will likely decrease in the coming weeks. The central bank’s measures create a strong ceiling for the dollar-yuan exchange rate, making large upward shifts less likely. Selling out-of-the-money USD call options to collect premiums seems to be a smart strategy, as the bank is essentially providing a safety net. We’ve seen this approach from authorities in previous economic slowdowns in **2023 and 2024**. During those times, steady and strong yuan fixes effectively limited currency weakness for extended periods. This history suggests that betting against the central bank’s resolve in the short term is risky. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now