The USD/CNH pair has risen from a low point this past year because the People’s Bank of China set a higher fixing rate than expected, which supports the yuan’s value. This shift could lead China to focus more on growth driven by consumers, but the overall trend for USD/CNH is still downward, according to BBH FX analysts. The People’s Bank of China is affecting expectations for the yuan’s appreciation by fixing the USD/CNY at 7.0733, which is higher than Bloomberg’s estimate of 7.0569. This difference of 164 pips is the biggest since February 2022.

Stronger Yuan and Economic Transition

A stronger yuan may help China move towards a consumer-focused economy. It can boost disposable incomes by making imports cheaper, with minimal impact on the manufacturing sector since the yuan remains undervalued. Overall, the USD/CNH trend continues downward. The recent recovery in USD/CNH from a one-year low of about 7.0540 comes from the PBOC’s unexpected fixing. This indicates that authorities prefer to control how quickly the yuan appreciates rather than to reverse it. For traders, this creates a short-term safety net but doesn’t change the long-term downward trend expected into early 2026. We think this policy encourages China’s switch to a consumer-led economy, as a stronger yuan enhances the buying power for imports. Supporting this view, China’s National Bureau of Statistics reported a solid 4.5% year-over-year rise in retail sales for October 2025. A stronger currency is crucial for maintaining domestic demand.

US Dollar and Monetary Policy

Meanwhile, the strength of the US dollar is weakening. Recent US inflation data from November 2025 showed a rate of 2.8%. This has reinforced market expectations that the Federal Reserve will keep rates steady through the first quarter of 2026, which further applies downward pressure on the dollar against the yuan. Given the PBOC’s management strategies, selling out-of-the-money call spreads on USD/CNH seems wise for the upcoming weeks. This strategy benefits if the pair stays below a certain level and from time decay, while also limiting risks in case of an unexpected fixing that causes a temporary spike. Consider strike prices above the recent intervention level, around 7.10 to 7.12. For those who feel strongly about the direction, buying puts that expire in late January or February 2026 could capture the next downward move. After the volatility in 2024, implied volatility has been rising, making this trade less inexpensive. However, it allows for direct positioning for a potential dip below the critical psychologically significant level of 7.00. Create your live VT Markets account and start trading now.

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