The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as the renminbi or RMB. China uses a managed floating exchange rate system, which allows the yuan’s value to change within a specific range, currently set at +/- 2% around the midpoint.

Setting The Midpoint

Every morning, the PBOC establishes a midpoint for the yuan based on a basket of currencies, mainly including the US dollar. This setting takes into account market supply and demand, economic indicators, and changes in the international currency market. The midpoint serves as the reference rate for trading that day. The yuan can fluctuate within a range of +/- 2% around this midpoint, meaning it can only rise or fall within this limit each day. The PBOC can adjust this trading band depending on economic conditions. If the yuan approaches these limits or experiences too much volatility, the PBOC may step in by buying or selling yuan to stabilize its value. Currently, with the USD/CNY reference rate at 7.1670, the PBOC continues to set a midpoint that is stronger than what the market expected. This shows that they aim to reduce yuan depreciation amid ongoing economic challenges. Traders should see this as a sign that authorities want to prevent a rapid weakening of the currency. This approach is consistent with actions seen in 2023 and 2024 when China struggled with post-pandemic recovery and issues in the property sector. For example, in July 2025, China’s trade surplus was reported at $70.6 billion, which was lower than expected, indicating the economy still needs help. The PBOC’s strong fixes during this period created a clear strategy to support the yuan.

Strategy For Traders

For options traders, the PBOC’s controlled approach suggests that implied volatility for USD/CNY might be too high. Since the central bank limits how much the exchange rate can rise, selling out-of-the-money USD/CNY call options may be a good way to earn premium. Frequent interventions reduce the chances of large price increases, making these trades safer compared to a freely floating currency. A crucial point to monitor is the +/- 2% trading band around the daily midpoint. If the spot rate stays close to the lower end of this band, it shows ongoing pressure for depreciation, which the PBOC is trying to combat. This steady action allows for more predictable trading strategies, favoring those betting the yuan will remain within its managed range in the short term. Create your live VT Markets account and start trading now.

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