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The People’s Bank of China (PBOC) set the USD/CNY reference rate at 7.0856, a change from the previous rate of 7.0881. This adjustment was below the Reuters estimate of 7.1029.
The PBOC’s main monetary policy goals are to maintain price stability and foster economic growth. It also focuses on financial reforms, including opening and developing the financial market.
Central Bank Structure
Owned by the state, the PBOC’s management is influenced significantly by the Chinese Communist Party. Mr. Pan Gongsheng currently holds dual roles as CCP Committee Secretary and Governor.
The PBOC utilises a broader range of monetary policy tools compared to Western economies. These include the seven-day Reverse Repo Rate, Medium-term Lending Facility, foreign exchange interventions, and Reserve Requirement Ratio. The Loan Prime Rate is the benchmark interest rate, affecting loan, mortgage, and savings rates.
In China, 19 private banks operate in a predominantly state-controlled financial sector. The largest private banks, WeBank and MYbank, are backed by major tech companies, Tencent and Ant Group. Since 2014, fully privately funded domestic lenders are permitted to operate.
Today’s stronger-than-expected Yuan fixing from the People’s Bank of China is a clear signal. The central bank is actively managing the currency’s value, pushing back against market pressure that would otherwise weaken it. We should interpret this as a deliberate move to ensure stability.
Yuan Stability Signal
This action comes as we see signs of a mixed economic recovery. The latest data for the third quarter of 2025 showed GDP growth at a modest 4.9%, while recent export figures have been sluggish, declining over 6% year-on-year. A stable currency helps prevent capital outflows and supports confidence when underlying economic numbers are not overwhelmingly strong.
We have seen this playbook before, particularly during the economic headwinds of late 2023 and early 2024. During that period, the PBOC consistently set the daily fix significantly stronger than market estimates to manage the Yuan’s depreciation against a robust US dollar. This history suggests the current policy is not a temporary whim but a sustained strategy.
For derivative traders, this reinforced ceiling on the USD/CNY pair makes selling call options or implementing bear call spreads an attractive strategy. With the central bank actively suppressing upward volatility, the premium collected from these options has a higher probability of being retained. We should anticipate that implied volatility on the pair will likely compress in the near term.
This move also has implications for equity derivatives. A stabilized Yuan is often a precondition for attracting foreign investment and calming local markets. This could provide a floor for Chinese equity indices, making it a good time to consider buying call options on ETFs tracking the FTSE China A50 Index.
Therefore, we should not view this as a signal of a major Yuan rally, but rather as the enforcement of a trading range. Our focus in the coming weeks should be on strategies that profit from low volatility and a capped upside in the USD/CNY rate. The daily fix will remain our most important indicator of the central bank’s intentions.
