The People's Bank of China intervened in foreign exchange markets to push the yuan up by 1.4% against the U.S. dollar in late December 2025, signaling a strategic shift to support export competitiveness and reduce speculative carry trades. The move tightened pressure on USD/CNY, which hit a six-month high before reversing.
- PBOC intervened to strengthen yuan by 1.4% from 7.3860 to 7.2790 in USD/CNY
- FXI fell 5.2% YTD before rebounding 3.1% post-intervention
- CYB showed capital outflows amid weakening yuan sentiment
- Swap points turned positive—first sign of reduced bearish bets on CNY
- Iron ore futures dropped 2.9% on reduced import demand signals
- Carry trade activity likely to contract due to tighter yuan policy
The People's Bank of China executed targeted interventions in late December 2025 to strengthen the renminbi, pushing USD/CNY from 7.3860 to 7.2790 within three trading sessions—a 1.4% appreciation. This marked the first significant upward correction in the yuan since September, reflecting policy intent to counteract depreciation-driven trade distortions. The central bank’s actions were prompted by rising concerns over the impact of a weak yuan on export pricing and international competitiveness. A weaker currency had fueled speculative carry trades, where investors borrowed low-yielding currencies like the U.S. dollar to invest in higher-yielding Chinese assets. With FXI (iShares MSCI China ETF) down 5.2% year-to-date and CYB (ChiNext Index) showing signs of capital outflow, the PBOC sought to stabilize market sentiment. Key metrics underscore the shift: the overnight interbank rate for CNY/USD swap points turned positive for the first time since May, indicating reduced demand for shorting the yuan. Meanwhile, commodity traders observed immediate adjustments—iron ore futures in Shanghai dropped 2.9% as stronger yuan reduced import demand from exporters reliant on raw material inputs. Market participants now expect tighter capital controls and more active intervention, affecting global risk positioning. Investors in emerging-market debt and leveraged equity funds are reassessing exposure to China-linked assets, with the broader FXI index seeing a 3.1% rebound following the intervention.