The People’s Bank of China (PBOC) set the USD/CNY central rate at 7.0930 for Tuesday. This follows a previous rate of 7.0973 and a Reuters estimate of 7.1219. The PBOC aims to keep prices stable and support economic growth, using tools like the seven-day Reverse Repo Rate and Medium-term Lending Facility. The PBOC is state-owned and influenced by the Chinese Communist Party Committee Secretary, Mr. Pan Gongsheng, who is also the Governor. China allows 19 private banks, including digital lenders WeBank and MYbank.

The Loan Prime Rate

The Loan Prime Rate is China’s main interest rate, which affects loans and mortgage rates. Changes to this rate also influence the Renminbi’s exchange rates. In China, private banks have a small presence, and the banking sector is mainly state-controlled. The central rate set at 7.0930 for USD/CNY is an important message from the PBOC. This rate is much stronger than the market’s expected 7.1219, showing a clear intent to support the yuan and prevent it from weakening. For derivative traders, this makes betting on a quick drop in the yuan much riskier. We need to consider this action alongside recent economic data. China’s GDP growth for Q3 2025 was 4.8%, slightly below expectations, and September’s trade data showed exports contracting for the third month in a row. Typically, such economic weakness would lead to a weaker currency to boost competitiveness, but the PBOC is focusing on stability instead.

Conflict Between Market Fundamentals And Official Policy

This situation creates a conflict between market realities and official policy. We saw a similar pattern in 2023 when the PBOC defended the yuan against a strong US dollar. The PBOC is carefully using its policy tools to balance growth support and prevent capital outflows. While the yuan might be on a long-term weak trend, its path will be closely managed. As a result of this intervention, we can expect more price fluctuations in the USD/CNY pair in the coming weeks. Options strategies that benefit from price movements without requiring a strong direction, like long straddles, could be a good choice. The PBOC’s defense of the 7.10 level may limit straightforward long USD/CNY positions. Therefore, traders should be cautious when holding long USD/CNY forward positions since the PBOC has shown it’s willing to make shorting the yuan costly. The main risk lies in a sudden policy change if economic conditions worsen, but for now, the signal is to respect the PBOC’s stance. This indicates that selling USD/CNY when it approaches the 7.12 level may provide a better risk-reward than seeking a breakout. Create your live VT Markets account and start trading now.

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