Insights 
VT 
On Monday, the People’s Bank of China (PBOC) set the USD/CNY central rate at 7.1007, slightly lower than Friday’s fix of 7.1048. The rate also deviated from Reuters’ estimated 7.1210.
The PBOC aims to maintain price stability, including exchange rate stability, while promoting economic growth. It also seeks to advance financial reforms, directing the development of the financial market in China.
The Role Of The PBOC
Owned by the state of the People’s Republic of China, the PBOC is guided by the Chinese Communist Party Committee Secretary. Mr. Pan Gongsheng currently holds both the governor and Committee Secretary positions.
The PBOC employs several policy tools, including Reverse Repo Rate, Medium-term Lending Facility, foreign exchange interventions, and Reserve Requirement Ratio. The Loan Prime Rate, a benchmark interest rate, impacts loan and mortgage rates alongside influencing the Renminbi’s exchange rates.
China hosts 19 private banks, like WeBank and MYbank, which were allowed to operate from 2014. These banks form a minor segment of the predominantly state-controlled financial sector.
The People’s Bank of China has set the yuan fixing stronger than anticipated, signaling a clear intention to support the currency. This action, dated October 13, 2025, tells us the central bank is actively pushing back against depreciation pressure. Traders should view this as a sign that authorities are prioritizing exchange rate stability over letting the market dictate the yuan’s value.
Market Impact And Implications
This intervention comes as China’s Q3 2025 GDP growth registered a modest 4.8%, and the latest industrial output figures showed a slight slowdown. In contrast, the US dollar remains strong, buoyed by recent US inflation data from September 2025 which came in at 3.5%, keeping the Federal Reserve on a hawkish footing. This divergence creates a conflict where the PBOC is fighting fundamental economic pressures to maintain control of the yuan.
For derivative traders, this managed environment suggests that implied volatility in USD/CNH options may be overpriced. The central bank’s firm stance will likely cap any sudden upward moves in the currency pair in the near term. We believe selling short-dated strangles could be a viable strategy, capitalizing on the suppressed price action.
Looking ahead, we must watch for any changes in the PBOC’s other policy tools, such as the Medium-term Lending Facility (MLF) rate later this week. If economic data continues to soften, authorities might be forced into an interest rate cut, which would put renewed depreciation pressure on the yuan. Such a move would test the central bank’s resolve and could signal a shift in their current currency policy.
This pattern of using strong fixings to counter market weakness is something we have seen before, particularly during the economic headwinds of 2023 and 2024. Back then, the PBOC successfully slowed the pace of depreciation by consistently setting the daily rate stronger than market expectations. Therefore, traders should be cautious about building large positions betting on yuan weakness, as the central bank has a history of defending key psychological levels.
