Insights 
VT 
The People’s Bank of China (PBOC) set the USD/CNY central rate for the upcoming trading session at 7.1021, compared to the previous rate of 7.1007 and a Reuters estimate of 7.1353.
The PBOC focuses on maintaining price stability, including exchange rate stability, and promoting economic growth. It seeks to implement financial reforms to develop the financial market. The PBOC is owned by the state of the People’s Republic of China and is influenced by the Chinese Communist Party Committee Secretary, who is nominated by the Chairman of the State Council. Mr. Pan Gongsheng currently holds both these positions.
Monetary Policy Tools Of The PBOC
The PBOC employs a variety of monetary policy tools, such as the seven-day Reverse Repo Rate, Medium-term Lending Facility, foreign exchange interventions, and Reserve Requirement Ratio. The Loan Prime Rate (LPR) serves as China’s benchmark interest rate, impacting loan and mortgage rates and savings interest. Adjustments to the LPR can also affect the exchange rates of the Chinese Renminbi.
China allows 19 private banks, which form a small portion of its financial system. Notably, the largest private banks, WeBank and MYbank, are supported by tech firms Tencent and Ant Group. Since 2014, domestic lenders funded by private capital have been permitted to function in the state-dominated sector.
The People’s Bank of China has signaled its intent to prevent further yuan depreciation. Today’s USD/CNY fixing at 7.1021 was significantly stronger than market estimates, which were around 7.1353. This strong-bias fixing is a clear message that authorities will actively manage the exchange rate to ensure stability.
We see this move as a direct response to underlying economic pressures. Recent data from the third quarter of 2025 showed GDP growth at 4.4%, slightly missing forecasts and highlighting a sluggish recovery, particularly in the property and consumer sectors. This weakness, combined with a struggling export market, has been fueling bets against the yuan.
Economic Impact And Strategy
This policy action is happening while the US Federal Reserve maintains elevated interest rates to combat persistent inflation, which was last reported at 3.2% for September 2025. The wide interest rate difference between the US and China naturally favors the dollar and puts downward pressure on the yuan. The PBOC is therefore pushing against powerful global capital flows with its currency management.
From a historical perspective, this strategy is familiar to us. We observed similar patterns of aggressively strong fixings throughout late 2023 when the PBOC fought to stem capital outflows and stabilize the currency. This suggests a playbook is in effect, focused on preventing a disorderly slide rather than targeting a specific exchange rate level.
For derivative traders, this increases the risk of holding straightforward long USD/CNY positions, as the PBOC has shown its willingness to cap the upside. Options strategies that bet on a range-bound currency or an increase in volatility, such as selling call spreads or buying straddles, could be more appropriate. The clear intervention makes predicting short-term direction extremely difficult.
Looking ahead, we must closely watch the upcoming Medium-term Lending Facility (MLF) rate decision for clues on domestic monetary policy. Any further easing to support the economy would intensify the conflict with the PBOC’s goal of a stable yuan. This tension between stimulating growth and maintaining currency stability will likely define trading conditions in the coming weeks.
