The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as the renminbi (RMB), against a basket of currencies, mainly the US dollar. The expected USD/CNY reference rate is 7.1852, with the announcement scheduled for around 0115 GMT. The PBOC uses a managed floating exchange rate system, which allows the yuan’s value to change within a certain range around a central reference point. This trading band is currently +/- 2%, meaning the yuan can rise or fall by up to 2% from the midpoint in a single trading day.

Factors Influencing The Yuan

When determining the daily midpoint, the PBOC considers market supply and demand, economic indicators, and global currency market trends. If the yuan approaches its trading band limit or shows excessive volatility, the PBOC may step in to stabilize the currency. This involves buying or selling the yuan to maintain a controlled value adjustment. The PBOC aims to slow the yuan’s depreciation with its daily reference rate. The anticipated fix of 7.1852 is stronger than what the market has been showing offshore, with USD/CNH testing the 7.21 level. This indicates the PBOC is resisting market pressure and will not let the yuan decline rapidly. This managed stability occurs during a time of mixed economic signals. China’s July 2025 industrial production growth was lower than expected at 3.5% year-over-year, while recent US Federal Reserve minutes suggest that interest rates will remain high. These factors are leading to a market preference for a weaker yuan compared to a stronger dollar. For derivative traders, this situation creates a classic range-bound environment, influenced by policy. Strategies that benefit from low volatility may be wise, as the PBOC appears to be limiting the daily gains for USD/CNY. Selling options could be a favorable approach, as the PBOC’s actions are likely to keep the pair within a tight range for now.

Past Strategies And Future Risks

In 2023, we saw a similar situation when the PBOC defended the yuan against significant depreciation. The central bank consistently used its daily fix to stabilize the currency, even amid economic signals suggesting further weakness. This strategy seems to be a repeat of their previous successful efforts to prevent disordered capital outflows. The main risk in the coming weeks is deteriorating economic data from China that could compel the PBOC to allow a larger, one-time devaluation. We should watch for any breach of crucial psychological levels, such as the 7.30 mark, which has been a significant indicator in the past. A move beyond this level would indicate a major policy shift, changing from a range-trading strategy to a more directional approach. Create your live VT Markets account and start trading now.

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