The People’s Bank of China (PBOC) has set the USD/CNY reference rate for the next trading session at 7.0602, down from the previous rate of 7.0656. The PBOC aims to maintain price stability, including stable exchange rates, and to support economic growth through financial reforms and market development. The PBOC is owned by the People’s Republic of China. The Committee Secretary, appointed by the State Council, greatly influences its management. Mr. Pan Gongsheng currently holds both the Committee Secretary position and the Governor role at the PBOC.

PBOC’s Policy Tools

The PBOC uses many policy tools, such as the seven-day Reverse Repo Rate, Medium-term Lending Facility, foreign exchange interventions, and Reserve Requirement Ratio. The Loan Prime Rate serves as the main interest rate for market loans, mortgages, and savings interest. China has 19 private banks, which make up a small part of the financial system. Among these are digital banks WeBank and MYbank, linked to tech companies Tencent and Ant Group. Since 2014, the Chinese government has allowed fully private-funded banks to enter the financial market. With the PBOC setting a stronger reference rate at 7.0602, it clearly intends to strengthen the yuan against the US dollar. This marks a level not seen since early 2024, indicating a policy change. Therefore, we should prepare for a potential decline in the USD/CNY pair in the next few weeks. This official move aligns with recent signs of stabilization in the Chinese economy. For instance, the November 2025 manufacturing PMI data showed an unexpected rise to 51.2, indicating growth. A robust yuan helps manage commodity import costs and signals economic confidence, providing strong support for the currency’s rise.

Opportunities for Traders

For derivative traders, this situation creates opportunities in FX options, especially buying puts on the USD/CNY. This strategy allows you to benefit from a possible decline to the 7.00 psychological level while minimizing risk. If the PBOC’s guidance creates a clear trend, implied volatility may decrease, making long-option strategies more appealing. A stronger yuan also impacts commodities, as it enhances China’s purchasing power for dollar-priced goods like crude oil and iron ore. Currently, oil prices are stabilizing around $85 per barrel due to strong global demand. This currency development could provide extra support, making call options on energy and industrial metal ETFs a smart secondary trade. On a global level, the yuan’s strength coincides with the market expecting a US Federal Reserve policy change in the first quarter of 2026, which is putting pressure on the US dollar. This difference in central bank policies offers a favorable environment for the yuan. We should keep a close watch on upcoming US inflation data, as a lower reading could speed up this trend. Create your live VT Markets account and start trading now.

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