On Monday, the People’s Bank of China set the USD/CNY central rate at 7.0816. This is slightly lower than Friday’s rate of 7.0825 and below the Reuters estimate of 7.0956. The People’s Bank of China focuses on keeping prices stable, including the exchange rate, while promoting economic growth. It is a state-owned institution guided by the Chinese Communist Party.

Central Bank Tools

China’s central bank uses various monetary tools, including the Reverse Repo Rate, Medium-term Lending Facility, and Reserve Requirement Ratio. The Loan Prime Rate, which serves as the benchmark interest rate, directly affects loan and mortgage rates as well as the exchange rate of the Renminbi. In addition, China has allowed 19 private banks in its mainly state-run financial system. Notable examples include digital banks WeBank and MYbank, which are linked to tech companies Tencent and Ant Group. The People’s Bank of China recently indicated it wants to keep the yuan stable by setting a daily reference rate higher than the market had anticipated. This action on November 17, 2025, shows that officials are not comfortable with the yuan weakening beyond key psychological levels. For those trading derivatives, this suggests that the USD/CNY pair will encounter strong resistance in its upward movement. This intervention occurs even though the domestic economy faces challenges. China’s Q3 GDP growth for 2025 was only 4.8%, leading to two cuts in the Loan Prime Rate earlier this year. This situation highlights a core issue: the PBOC aims to stimulate the economy while also preventing capital outflows caused by a rapidly weakening currency. Balancing these priorities will likely remain a challenge until the end of the year.

External Pressure

External pressures come from a strong US dollar, supported by recent US inflation data showing a 3.5% annual increase for October 2025. This creates a significant interest rate gap between the US Federal Reserve’s steady rate of 5.50% and China’s benchmark rate. This gap is a key factor pushing capital toward dollar-denominated assets and putting pressure on the yuan. Given the PBOC’s clear goal to control the exchange rate, implied volatility in USD/CNH options is likely to decrease in the coming weeks. Selling out-of-the-money USD calls might be a good strategy, as the central bank is setting a ceiling on how much the pair can move. We observed a similar trend in 2023 and 2024, where official interventions frequently muted sharp movements. Thus, it seems unlikely that we will see a significant breakout above the 7.10 level for now. Traders holding long positions in the US dollar against the yuan for its positive carry should think about hedging their investments. The risk is that the spot price may move against them, cutting into any gains from the interest rate differential. Looking ahead, we will keep a close eye on China’s upcoming industrial production and retail sales data for hints of economic recovery. Any unexpected strength in the daily yuan fix or warning signals from officials would be a strong indication to reduce long USD/CNY positions. The central bank’s decisions currently play the biggest role for this currency pair. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now