The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as the renminbi (RMB). The currency is allowed to fluctuate within a specific range, or “band,” of about +/- 2% from this midpoint. Each morning, the PBOC determines the midpoint by considering a basket of currencies, primarily focusing on the US dollar. This process looks at market supply and demand, economic data, and changes in global currencies.

Daily Fluctuation Range

The yuan can move within a 2% range of the midpoint. This means it can appreciate or depreciate by up to 2% in one trading day. The PBOC adjusts this range based on economic conditions and policy goals. If the yuan approaches the limits of this trading band or shows significant volatility, the PBOC may take action. This could involve buying or selling yuan to stabilize its value, ensuring a smooth adjustment of the currency. The anticipated USD/CNY fixing at 7.2033 indicates that the central bank is allowing the yuan to weaken. This seems to align with recent economic data, as China’s GDP growth for Q2 2025 was slightly lower than expected, at 4.8%. This could be a strategy to support a slowing economy and aid the export sector.

Currency Pressure and Strategy

Traders should keep an eye on the offshore yuan (CNH) spot price compared to the daily midpoint set by the PBOC. If the spot price consistently trades lower than the central bank’s fix, it shows strong market pressure for depreciation. This trend was evident in mid-2025, particularly after disappointing July export data that revealed a 1.5% year-over-year decline. Given the situation, buying longer-dated call options on the USD/CNY pair may be a smart strategy. However, since the PBOC actively seeks to avoid extreme, volatile moves, implied volatility is expected to remain low. This could create opportunities to sell short-dated, out-of-the-money options to collect premiums from gradual price increases. It’s important to recall the approach used in 2023 and 2024, where authorities guided the yuan downward but intervened to prevent chaotic selling. While the +/- 2% trading band exists, state-owned banks often step in well before the limit is hit. Traders should prepare for a managed decline rather than an uncontrolled free-fall. This currency trend is also shaped by differing policies between China and the United States. The US Federal Reserve kept interest rates steady at its July 2025 meeting, citing a strong job market and persistent core inflation. This contrasts with recent rate cuts by the PBOC, which strengthen the US dollar against the yuan. Create your live VT Markets account and start trading now.

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