The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, or renminbi (RMB). The PBOC uses a managed floating exchange rate system, allowing the yuan to move within a defined “band” of +/- 2% around a central reference rate. Each morning, the PBOC decides the yuan’s midpoint based on a basket of currencies, mainly focusing on the US dollar. This decision takes into account market trends, economic data, and global currency movements. The midpoint serves as a guide for daily trading.

The Trading Band And The Yuan

The trading band permits the yuan to fluctuate within a 2% range from the midpoint during trading hours, meaning it can appreciate or depreciate. The PBOC may adjust this range based on economic conditions and policy goals. If the yuan hits the edges of the trading band or experiences too much volatility, the PBOC may step in. They can buy or sell yuan to maintain stability, allowing a controlled adjustment in its value. The daily midpoint setting is significant, and we should watch closely to see if it exceeds the estimated 7.1325. Recent economic data from China, like the August 2025 Caixin Manufacturing PMI of 50.2, hints at economic weaknesses. A stronger midpoint would show that officials are still worried about the yuan’s decline against a strong US dollar. The +/- 2% trading band creates a clear range for daily movements, which generally reduces short-term volatility. For example, in the summer of 2025, the USD/CNY rate often approached the weaker end of this band but did not break it, limiting gains. This pattern implies that strategies like iron condors, which sell short-term volatility, could work well if we believe the PBOC will maintain its strong management.

Monitoring The Fixing Bias

In the upcoming weeks, we need to track the fixing bias, which is the difference between the official midpoint and market estimates. In 2025, the PBOC has regularly set a stronger reference rate than expected, indicating a clear intent to counter currency weakness. If this trend shifts, and the fixing starts aligning more closely with weaker estimates, it would signal that policymakers are more accepting of a lower yuan. This is especially important since China’s exports dropped by 2.8% year-over-year in the second quarter of 2025, making a case for a more competitive currency. The sudden policy change in August 2015 serves as a reminder that a steady depreciation can pivot quickly. Therefore, while the trading band presents tactical opportunities, holding longer-term USD/CNY call options remains a smart strategy against possible unexpected policy changes. Create your live VT Markets account and start trading now.

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