Insights 
VT 
On Monday, the People’s Bank of China set the USD/CNY central rate at 7.0816, slightly lower than Friday’s rate of 7.0825 and under the Reuters estimate of 7.0956.
The People’s Bank of China is tasked with maintaining price stability, including the exchange rate, and supporting economic growth. It is state-owned, with guidance from the Chinese Communist Party.
Central Bank Tools
China’s central bank employs diverse monetary tools such as the Reverse Repo Rate, Medium-term Lending Facility, and Reserve Requirement Ratio. The Loan Prime Rate, as the benchmark interest rate, directly affects loan and mortgage rates and impacts the exchange rate of the Renminbi.
China also permits 19 private banks amidst its predominantly state-run financial system. Notable private banks include digital lenders WeBank and MYbank, associated with tech companies Tencent and Ant Group.
The People’s Bank of China has just signaled its intent to keep the yuan stable by setting the daily reference rate much stronger than the market expected. This action on November 17, 2025, tells us that officials are not comfortable with letting the currency weaken past key psychological levels. For derivative traders, this suggests that the upward momentum in the USD/CNY pair will face significant resistance.
We are seeing this intervention despite a challenging domestic picture, where Q3 GDP growth for 2025 came in at a modest 4.8%, prompting two Loan Prime Rate cuts earlier this year. This policy divergence is a core theme, as the PBOC is trying to stimulate its economy while preventing the capital outflows that a rapidly weakening currency would cause. This creates a difficult balancing act that we can expect to continue into the end of the year.
External Pressure
The external pressure is coming from a strong US dollar, which has been bolstered by recent US inflation data that showed a 3.5% annual increase for October 2025. This reinforces the wide interest rate gap between the US Federal Reserve’s policy rate, holding firm at 5.50%, and China’s benchmark rate. This differential is the fundamental force pushing capital towards dollar-denominated assets and weighing on the yuan.
Given the PBOC’s clear intention to cap the exchange rate, implied volatility on USD/CNH options is likely to compress in the coming weeks. We believe selling out-of-the-money USD calls could be a viable strategy, as the central bank is effectively creating a ceiling on the pair’s movement. This is a pattern we saw repeatedly back in 2023 and 2024, where official intervention consistently dampened sharp moves.
Therefore, expecting a major breakout above the 7.10 level seems unlikely for now. Traders who are long the US dollar against the yuan for its positive carry should consider hedging their positions. The risk is that the spot price moves against them, eroding any gains made from the interest rate differential.
Looking ahead, we will be closely watching China’s upcoming industrial production and retail sales figures for any signs of economic recovery. Any further unexpected strength in the daily yuan fix or verbal warnings from officials will be a clear sign to reduce long USD/CNY exposure. The central bank’s actions are currently the most dominant factor for the currency pair.
