The People’s Bank of China (PBOC) has set today’s USD/CNY reference rate at 7.1322, which is stronger than the expected rate of 7.1793. This reference rate shows the maximum amount the yuan can fluctuate, which is +/- 2% around this midpoint. Yesterday, the closing rate was 7.1831. The PBOC also added 266.5 billion yuan to the market via 7-day reverse repos at an interest rate of 1.40%.

Important Update from the PBOC

Today, August 18, 2025, the PBOC has sent an important message. The yuan reference rate is set significantly higher than what the market expected, indicating its desire to slow down the yuan’s decline. This action, along with the recent liquidity support, shows that the PBOC is working to maintain stability in the face of market pressures. This move comes as economic data from July shows that China’s industrial production remains weak. Meanwhile, the US dollar is gaining strength due to a cautious Federal Reserve that is not reducing rates. This creates a tug-of-war between weak economic conditions pushing the yuan down and official policies aiming to support it. For traders, this means that while the USD/CNY may rise, the movement will likely be slow and uneven. Given this situation, we should keep in mind that the implied volatility in USD/CNY options might be too high. The PBOC’s intervention limits sharp increases, making big fluctuations less likely. Therefore, selling out-of-the-money call options or using call spreads might be a smart strategy to take advantage of this low volatility.

Trends from 2023 and 2024

This situation is similar to what we saw in late 2023 and 2024, when the PBOC consistently defended the 7.30-7.35 range with strong yuan fixes. History shows that while the PBOC can’t stop the overall trend forever, it can slow down the yuan’s depreciation for weeks or months. Because of this, being overly aggressive with long positions in USD/CNY through spot or futures can be risky. A better approach might be to use options to bet on a gradual rise. Create your live VT Markets account and start trading now.

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