On Monday, the People’s Bank of China (PBOC) set the USD/CNY central rate at 7.0051. This is slightly lower than Friday’s rate of 7.0078 and higher than Reuters’ estimate of 6.9689. The central bank focuses on keeping prices and exchange rates stable while also supporting economic growth. The PBOC is owned by the People’s Republic of China. Its management is directed by the Chinese Communist Party Committee Secretary, influenced by the State Council. Currently, Mr. Pan Gongsheng holds key leadership roles.

Monetary Policy Tools Used by PBOC

The PBOC uses several unique monetary policy tools that differ from those in Western economies. These include the Reverse Repo Rate, Medium-term Lending Facility, foreign exchange interventions, and the Reserve Requirement Ratio. The Loan Prime Rate serves as China’s benchmark interest rate and affects both loan and savings rates, as well as the Renminbi’s exchange rates. China has 19 private banks, making up a small part of the financial sector. Notable private banks include WeBank and MYbank, backed by tech giants Tencent and Ant Group. Since 2014, privately funded domestic lenders have been allowed in the state-controlled financial industry. The People’s Bank of China has set the yuan’s reference rate just above 7.00. This indicates that authorities are managing the currency’s weakness instead of trying hard to strengthen it. Traders should view this as a signal of stability rather than an indication of a sharp appreciation of the yuan. This decision follows disappointing economic data from China’s fourth quarter of 2025, which showed GDP growth at 4.8%, below analyst expectations. December 2025 export figures also reflected a decline, showing a year-over-year drop of 2.1% as global demand weakened. A stable currency, just above 7.00, aids the struggling export sector while preventing panic.

Implications for Derivative Traders

For derivative traders, this managed stability suggests that implied volatility on USD/CNY options will likely stay low in the upcoming weeks. This environment is less suitable for buying options and favors strategies that benefit from a stable market, like selling strangles. We should not aim for a breakout but instead plan for the pair to trade within a range that the PBOC supports. We observed a similar pattern in 2025 when the central bank guided the yuan lower to combat slowing global demand and later stabilized it to avoid capital outflows. Historically, the PBOC’s main goal is to prevent disorderly moves, suggesting that betting on a sudden devaluation is risky. The central bank is likely to continue using its daily fix to reduce volatility. The differing policies with the United States remain crucial, as the Federal Reserve has kept its hawkish stance, maintaining rates through the end of 2025. This difference in interest rates favors the US dollar and limits any potential strength of the yuan. Therefore, we should consider any dips in USD/CNY as opportunities to buy, assuming US economic data remains strong. Create your live VT Markets account and start trading now.

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