The People’s Bank of China (PBoC) set the USD/CNY central rate at 7.0523, which is lower than the previous day’s rate of 7.0572. This rate was also higher than the Reuters estimate of 7.0267. The PBoC aims to keep prices stable, including exchange rates, and to encourage economic growth. It is not an independent organization; it is owned by the government. The Chinese Communist Party Committee Secretary, who is chosen by the Chairman of the State Council, plays a key role in running the PBoC.

Monetary Policy Tools

China’s central bank uses several monetary policy tools, including a seven-day Reverse Repo Rate, a Medium-term Lending Facility, foreign exchange interventions, and the Reserve Requirement Ratio. The Loan Prime Rate, which is China’s key interest rate, also affects loans, mortgages, and savings rates, impacting the Renminbi’s exchange rates. There are 19 private banks in China, which are a small part of the financial system. The largest private banks are WeBank and MYbank, backed by Tencent and Ant Group. These banks were established after a 2014 policy change that allowed private lenders fully funded by private capital in a largely state-run sector. The PBoC’s decision to set the yuan fix stronger, though not as strong as expected, sends a clear message. It indicates that while the authorities support some yuan strength, they will prevent rapid increases. This strategy aims to balance capital flows with the need to keep the export sector competitive. Recent economic data from November 2025 shows China’s industrial production increased by 4.9% year-over-year, surpassing expectations. However, retail sales are still slow, indicating that domestic demand isn’t strong enough to drive growth alone. Thus, keeping a stable and competitive currency is critical to support the export economy.

US Inflation and Trade Implications

At the same time, new data from the United States reveals that core inflation is cooling, increasing chances that the Federal Reserve might cut interest rates in the first quarter of 2026. This trend puts pressure on the US dollar against most currencies. A weaker dollar, coupled with a managed yuan, creates a complex trading environment. With the US dollar weakening and the yuan being controlled, we can expect implied volatility in USD/CNY options to stay steady. Traders may look for strategies that profit from a gradual decline in the currency pair instead of a sharp drop. For example, selling out-of-the-money USD/CNY call options could be a suitable strategy to gain premiums while recognizing the 7.00 level as an important policy floor. In late 2023, we saw a similar yet opposite trend when the PBoC consistently set the yuan stronger than expected to counteract depreciation fears during a weaker economy. This history shows their main goal is stability, and they will act against market sentiment to achieve it. This consistency is key for any future strategy. In the coming weeks, we should monitor the daily difference between the official fix and the spot currency’s opening price. A consistently large gap will show increasing market pressure against the central bank’s desired rate. This situation could lead to more significant policy changes or a strong market movement once trading volumes normalize in early 2026. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now