PBOC supports yuan by setting a firmer daily reference rate, sending a clear signal to markets that Beijing will defend the currency to limit capital outflows, calm volatility, and support its internationalization strategy amid renewed US-China trade tensions.
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PBOC set the yuan reference rate at 7.0995 per dollar to stabilize the currency and deter speculative selling.
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Officials aim to curb financial outflows, calm investor nerves, and reinforce a steady path for currency internationalization.
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Analysts from Goldman Sachs, Bank of America and others expect limited immediate appreciation; forecasts project gradual moves toward 6.7 by 2027.
PBOC supports yuan: China defends its currency with a firmer reference rate to curb outflows and calm markets. Read COINOTAG’s analysis and implications.
By COINOTAG — Published: October 15, 2025. Updated: October 15, 2025.
How did the PBOC support the yuan?
PBOC supports yuan by adjusting the daily reference (fixing) rate to 7.0995 per US dollar, the strongest fixing in nearly a year. The firmer fixing lifted the offshore yuan, eased pressure on onshore markets, and signalled a deliberate policy choice to limit depreciation and stabilize capital flows.
Why is China defending the yuan now?
Beijing’s decision reflects multiple policy priorities. Officials want to reduce financial outflows and prevent spikes in volatility ahead of important political meetings. The People’s Bank of China (PBOC) uses the daily fixing as a tool within a managed float: the onshore yuan is allowed a 2% trading band around the reference rate. By setting a stronger fixing, the PBOC narrows the room for speculative weakness and reassures domestic and foreign investors.
Market reaction was immediate: the offshore yuan strengthened and the US dollar eased slightly. Analysts in market commentaries cited in plain text from Bloomberg and institutional research note that a fix below 7.10 “sends a strong message of strength.” Fiona Lim, senior foreign-exchange analyst at Malayan Banking in Singapore, described the move as symbolic of China’s negotiation posture. Becky Liu, head of China macro strategy at Standard Chartered, told analysts the action is intended to anchor expectations and reduce volatility ahead of potential headline risk.
Goldman Sachs analysts, including Danny Suwanapruti and Xinquan Chen, noted the approach is markedly different from earlier episodes when a weaker yuan was tolerated to cushion trade shocks. Instead, policymakers now appear to prefer combining monetary and fiscal measures with a defensive currency stance. Bank of America strategists have suggested investors await clearer signs—such as lower inflation prints or new fiscal stimulus—before taking larger positions in the yuan. Credit Agricole CIB’s emerging markets desk expects a ranged dollar-yuan, noting domestic deflationary pressure and weak demand may cap yuan gains.
Frequently Asked Questions
Will keeping a firmer reference rate stop capital outflows?
Setting a firmer reference rate can reduce immediate speculative pressure and slow outflows by improving market psychology. However, long-term capital flows depend on factors like interest rate differentials, trade balances, and investor confidence. Policy measures and clear communication are required to sustain inflows.
How does this action affect global markets and trade negotiations?
China’s move stabilizes currency markets and lowers the chance of disorderly exchange-rate moves, which can ease short-term market stress. It does not directly alter trade positions but signals Beijing’s intent to avoid currency weakness as a bargaining tool. Markets may interpret the action as a step to limit spillovers into financial markets during negotiation cycles.
Detailed analysis and context
Under the current managed float mechanism, the PBOC sets a daily midpoint and allows the onshore yuan to trade roughly 2% either side of that fixing. By fixing at 7.0995 per dollar — crossing the symbolic 7.1 threshold — authorities demonstrated active management intended to discourage further depreciation. This differs from previous trade-war responses where a weaker yuan served as a partial shock absorber to US tariffs.
The context matters. Beijing is preparing for a high-profile internal meeting in late October where leadership will assess economic plans and risks; historically, authorities tighten market levers during such periods to preserve stability. The timing and scale of the fixing suggest a precautionary posture rather than a complete shift to sustained appreciation. Some market participants caution the PBOC’s changes may be too incremental to force a large or persistent move upward in the yuan, given headwinds like lower domestic interest rates compared with the US and ongoing trade uncertainties.
Forecasts from major banks vary. Bank of America analysts project the yuan may finish the year near 7.1 per dollar before gradually appreciating toward 6.7 by March 2027, assuming policy support and improving macro conditions. Traders and strategists quoted in plain text from institutional notes emphasize that the path will be shaped by inflation trends, fiscal stimulus, and global risk sentiment.
Key Takeaways
- Policy signal matters: A stronger fixing is a deliberate signal from Beijing to deter speculative depreciation and anchor market expectations.
- Limited immediate appreciation: Structural constraints—interest rate differentials and weak domestic demand—may cap how far the yuan can strengthen without broader policy shifts.
- Watch macro triggers: Inflation data, new fiscal stimulus and official communications will determine whether the firmer fixing becomes a sustained trend.
Conclusion
The PBOC’s decision to set a firmer reference rate shows a clear intent to stabilise the currency and manage market sentiment. By choosing a stronger fixing at 7.0995, Beijing aims to limit outflows, calm volatility, and support long-term plans to internationalize the yuan. Investors should monitor official data releases, policy announcements, and commentary from institutional research teams—named sources include Bloomberg, Goldman Sachs, Malayan Banking, Standard Chartered, Credit Agricole CIB and Bank of America—for evolving signals. For ongoing coverage and analysis from COINOTAG, follow our updates and expert commentary.
