The People’s Bank of China (PBOC) has set the USD/CNY reference rate at 7.0825 for today’s trading session. This is an improvement from yesterday’s rate of 7.0865 and lower than Reuters’ estimate of 7.0964.

PBOC’s Goals

The PBOC aims to keep prices stable, which includes maintaining a stable exchange rate, while also supporting economic growth. It is not fully independent; it is owned by the People’s Republic of China and heavily influenced by the Chinese Communist Party. The PBOC uses various policy tools, such as the seven-day Reverse Repo Rate, Medium-term Lending Facility, foreign exchange interventions, and the Reserve Requirement Ratio. The Loan Prime Rate sets the benchmark interest rate in China, affecting loans, mortgages, and savings. China allows private banks to operate, with 19 currently in business, plus major digital banks like WeBank and MYbank. These private banks form a small part of the financial system, which is mainly made up of state-owned institutions. Private banks were permitted in 2014 when China opened the financial sector to domestic lenders backed by private capital. The strong Yuan rate of 7.0825 shows that the PBOC is trying to counteract recent downward pressure on the currency. This suggests that the PBOC wants to stabilize the Yuan and prevent it from dropping below important psychological levels. We have seen this kind of action before when domestic data falls short of expectations. The latest figures for October 2025 showed industrial output at only 4.1%, which was again disappointing. Additionally, the property sector continues to struggle, with new home prices falling for the 16th month in a row. A stable Yuan is essential to avoid capital outflows and maintain confidence during this delicate recovery phase.

Market Implications

For derivative traders, the strong defense of the 7.10 level makes short-selling USD/CNY call options an appealing strategy. The PBOC’s actions suggest a ceiling on the currency’s upside in the near future, which may reduce implied volatility. This creates a challenge for policymakers because significant interest rate cuts aimed at boosting the economy could put more pressure on the Yuan. This policy approach also responds to the large interest rate gap between China and the US, as the Federal Reserve has kept its rate above 4.5% throughout 2025. Looking back at 2022-2023, the hawkish stance of the Fed pushed USD/CNY above 7.30, despite PBOC’s efforts. Therefore, although we can expect continued strong fixings, traders should be alert to any signs that the central bank might be losing control against these strong external pressures. Create your live VT Markets account and start trading now.

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