The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as the renminbi. This is part of a managed floating exchange rate system, where the yuan’s value can change within a specific range of +/- 2% around a central rate.

Setting the Midpoint

Every morning, the PBOC establishes a midpoint for the yuan against a group of currencies. They consider market supply, demand, economic indicators, and international currency trends. This midpoint serves as a reference for trading throughout the day. The PBOC allows the yuan to move within a +/- 2% band around this midpoint, adjusting it as needed based on economic factors. If the yuan approaches the limits of this trading band or shows excessive volatility, the PBOC may intervene by trading the yuan to stabilize its value. This aim is to maintain a steady and gradual adjustment in the currency’s value while balancing stability with necessary economic changes. Right now, the USD/CNY midpoint is around 7.15. This suggests that the PBOC is managing a gradual depreciation of the yuan compared to a strong US dollar. This strategy aims to bolster the Chinese economy without causing panic or rapid capital flight. Recent data backs this approach. In August 2025, China’s exports declined by 1.5% year-over-year, indicating sluggish international demand. A carefully managed weaker currency helps make Chinese goods more competitive abroad and supports the manufacturing sector.

Trading Strategy Insight

For traders, it’s important to note that the +/- 2% trading band is more of a theoretical limit than a daily reality. Because the PBOC is consistently active in the market, actual daily movements tend to be smaller. We shouldn’t expect sudden, volatile changes but rather a slow, controlled adjustment in the currency’s value. This environment of low volatility opens up specific trading strategies. The one-month implied volatility for USD/CNY options has dropped to about 3.5%, making it appealing to sell options. We might consider strategies such as short strangles or iron condors that benefit from the currency remaining within a predictable range. Looking back, we saw the yuan drop below 7.30 in late 2023, so the current level is not unusual. However, concerns about capital flight have increased, especially following a $12 billion net outflow of foreign direct investment in Q2 2025. This is why the PBOC is intervening cautiously to maintain stability. In the coming weeks, our strategy should focus on range-bound trades instead of betting on big movements. We can use futures options to identify a likely trading channel, such as 7.12 to 7.22. Selling options outside this expected range allows us to earn income from market stability. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now