The People’s Bank of China (PBOC) set the USD/CNY reference rate at 7.0230, down from the previous rate of 7.0288. This figure is also different from Reuters’ estimate of 6.9952.

Role of the People’s Bank of China

The PBOC, owned by the People’s Republic of China, is in charge of keeping prices and exchange rates stable while promoting economic growth. It operates under the Chinese Communist Party, with Mr. Pan Gongsheng at the helm. Unlike Western economies, the PBOC uses various monetary policy tools. Key tools include the Reverse Repo Rate, Medium-term Lending Facility, and Reserve Requirement Ratio. The bank also uses the Loan Prime Rate to influence loan rates and affect the Renminbi’s exchange rates. China has 19 private banks, a small part of its financial sector. Major digital lenders like WeBank and MYbank started operating fully after 2014 when domestic lenders funded by private money could enter the state-controlled sector. Today’s fixing of the yuan at 7.0230 per dollar signals a clear aim for managed stability from the PBOC. Although this rate is stronger than before, it’s still weaker than expected, suggesting that officials prefer not to see a rapid rise beyond the key 7.00 level. This approach encourages two-way volatility.

Economic Indicators and Exchange Rate Impact

This rate change is a response to recent economic data showing a fragile recovery. For example, China’s official manufacturing PMI for December 2025 was a low 50.1, and export growth for the last quarter of the year slowed to 1.8% year-over-year. A much stronger yuan could put additional pressure on an export sector already struggling with low global demand. Previously, the USD/CNY pair spent a long time above the 7.25 level during parts of 2024 and early 2025. Therefore, the current levels indicate a significant strengthening of the currency. The central bank’s decision today shows a desire to maintain these gains rather than let the yuan fluctuate freely. This aligns with the PBOC’s goal of ensuring both currency stability and economic growth. The PBOC’s policy tools also show caution, as seen in the modest 25-basis-point cut to the Reserve Requirement Ratio in November 2025. This was intended to ensure liquidity without signaling major stimulus. Thus, we see today’s currency fixing as part of a broader strategy to provide steady support for the economy. For derivatives traders, implied volatility in USD/CNY options might be undervalued. The gap between market expectations and official policy creates uncertainty, making long volatility positions like straddles appealing for capturing potential breakouts. For now, the central bank is capping the yuan’s strength, but underlying market pressures could trigger a sharp movement. Given the weak economic environment and the PBOC’s careful approach, traders might also look at strategies that profit from the yuan staying in a range or slightly depreciating. Selling out-of-the-money CNH call options could be a good way to collect premium, betting on the central bank’s continued preference against significant yuan strength in the coming weeks. This strategy would also serve as a hedge against any unexpected policy changes aimed at further stimulating the economy. Create your live VT Markets account and start trading now.

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