The PBOC set the USD/CNY rate at 7.1656, exceeding the expected rate of 7.1605.

    by VT Markets
    /
    Jun 24, 2025
    The People’s Bank of China (PBOC) is China’s central bank. It sets the daily midpoint value of the yuan, also called the renminbi or RMB. The bank uses a managed floating exchange rate system, allowing the yuan’s value to move within a range of +/- 2% around the central reference rate. Recently, the PBOC set the midpoint at its highest level since November 8, 2024, which is a strong indication for the yuan against the USD/CNY. The last close was recorded at 7.1772.

    PBOC’s Strongest Midpoint

    The PBOC injected 406.5 billion yuan through 7-day reverse repos at an interest rate of 1.40%. With 197.3 billion yuan maturing on the same day, the net injection totaled 209.2 billion yuan. This action shows the central bank’s effort to strengthen the currency without causing major disruptions in short-term liquidity. The stronger midpoint is a clear signal of policy intentions. It counters depreciation pressures and aligns with goals to stabilize capital outflows and improve sentiment. The injection of over 200 billion yuan through short-term reverse repos indicates that policymakers are trying to balance currency support while carefully managing liquidity. Although the injection is temporary, its scale and the slightly lower rate of 1.40% suggest an emphasis on maintaining conditions that support domestic credit operations without encouraging speculative behavior. For those looking at short-term rates and volatility, the intended direction is clear. A firmer midpoint, along with controlled liquidity increases, is likely to affect pricing in short-term volatility and interest rate bets. Yuan forwards might face modest selling pressure, especially for contracts under one month, as traders expect tighter control over spot movements. Zhou’s approach shows that they are not just reacting to market changes but also proactively steering expectations. This creates a reliable anchor for traders over the next few weeks. Thus, we can anticipate tighter range trading for the offshore yuan, especially during overlapping Asian and European sessions, unless there is a significant external shock.

    Implications For Short Term Trades

    The timing and volume of the reverse repo operation imply that policymakers are ensuring stability without increasing overall system leverage. They made the injection after some short-term maturities rolled off, providing just enough cushion to reduce interbank funding tension without pushing for broader easing. This method limits the risk of overnight repo rate spikes but does not indicate a shift to a more relaxed stance. We are now in a careful range-setting position. This means that tighter options in the 7-day to 1-month area might be worth considering, especially if implied rates continue to exceed actual figures. Costs for hedging downside USD/CNY positions may increase if the trend of firm midpoints continues, particularly if spot prices align closely with daily fixings. Other traders might notice Wu’s monetary tools are fairly predictable, focusing more on pace than volume. This strategy allows for repositioning exposure on aggressive forward bets assuming a volatile currency movement. There’s less room for surprises, especially concerning arbitrage between the onshore and offshore markets, due to the heightened sensitivity to fix-driven reactions. From our viewpoint, these actions provide a clear framework for traders to assess deviation risks and react before local economic data or shifts in dollar positioning. Timing is crucial to catch inefficiencies that arise from mispriced forwards or misaligned short-term rate assumptions. Each daily fix is now more than just a routine—it must be anticipated. As always, it’s important to monitor the spread between short-term CNH and CNY derivatives. There is a greater chance that minor dislocations will prompt new central bank actions, either through forward guidance or direct liquidity adjustments. This often limits moves outside expected ranges and requires more agile position size adjustments. Clear levels have been identified, which hold both symbolic and technical significance. If midpoints continue to serve as anchoring points, aligning our short-term trades to these markers becomes even more practical. The focus will shift from chasing a specific trend to anticipating zones of stability or orderly adjustments, especially where liquidity changes occur. Create your live VT Markets account and start trading now.

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