On Friday, the People’s Bank of China (PBoC) set the USD/CNY central rate at 7.0749, slightly up from the previous day’s rate of 7.0733. Reuters had predicted a rate of 7.0751. The PBoC aims to keep prices and exchange rates stable while supporting economic growth. It also focuses on financial reforms and the development of the financial market.

Ownership and Management

The PBoC is state-owned and not independent. Its management is influenced by the Chinese Communist Party Committee Secretary, who is appointed by the Chairman of the State Council. The PBoC uses various monetary policy tools, which differ from those in Western economies. These include the Reverse Repo Rate, Medium-term Lending Facility, foreign exchange interventions, and Reserve Requirement Ratio. The Loan Prime Rate serves as a key benchmark affecting loan and savings rates. China has 19 private banks, but they form a small part of the overall financial system. Notable digital lenders like WeBank and MYbank, backed by Tencent and Ant Group, are among the largest. Since 2014, the country has allowed privately funded domestic banks to operate within the financial sector. With the PBoC setting the USD/CNY reference rate at 7.0749, we see a continued acceptance of a gradual Yuan weakening. While not a drastic change, it aligns with the ongoing trend of a stronger dollar throughout most of 2025. For traders, this controlled depreciation indicates that betting against the Yuan is currently the easiest route.

Market Reactions

This adjustment appears to reflect recent economic data from China that supports a softer approach. The official manufacturing PMI for November 2025 was 49.8, indicating a second consecutive month of contraction and a sluggish factory sector. Along with slower-than-expected Q3 retail sales growth of just 2.5%, this gives authorities valid reasons to subtly use the exchange rate to encourage exports. Moreover, we must consider the increasing policy divide with the United States, where the Federal Reserve has held its policy rate at 5.0% to address ongoing core inflation, which was last reported at 3.1% for October. In contrast, the PBoC last lowered its key one-year Medium-term Lending Facility (MLF) rate to 2.40% back in September. This interest rate gap naturally puts upward pressure on the USD/CNY pair. Looking back, this situation resembles the pressures seen in 2023 when a strong dollar and concerns about China’s property market pushed the USD/CNY above 7.30. This past scenario suggests that while the central bank will prevent a chaotic decline, the underlying economic conditions can direct the currency in one direction for a long time. The PBoC is guiding the process rather than resisting the outcome. Given this steady and managed depreciation, traders should think about strategies that benefit from a slow rise in USD/CNY instead of sharp spikes. Buying call options on the pair for the first quarter of 2026 might capture this expected gradual increase. Because the central bank’s control limits daily fluctuations, implied volatility is relatively low, making these positions affordable to establish. Create your live VT Markets account and start trading now.

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