The People’s Bank of China (PBOC) plans to set the USD/CNY reference rate at 7.1667. The PBOC’s daily role includes determining the midpoint for the yuan against a range of currencies, especially the US dollar.

Fluctuation Controls

This reference rate allows the yuan to vary within a trading range of +/- 2%. The central bank takes into account market supply, demand, economic signals, and global currency changes when making its decisions. If the currency nears the edges of this range or becomes unstable, the PBOC may step in. This intervention can include buying or selling yuan to ensure its value remains steady and adjusts gradually. The PBOC’s actions are influenced by economic conditions and policy goals. This managed floating exchange rate system is designed to control the yuan’s fluctuations. With the People’s Bank of China expected to guide the yuan to 7.1667 against the dollar, we are closely monitoring how it manages the currency. This is especially important as recent data revealed that China’s exports for July 2025 unexpectedly dropped by 1.5%, which has created slight downward pressure on the yuan. The daily reference rate is a key indicator of the central bank’s immediate plans. Setting the reference rate slightly stronger than what the market anticipated indicates the PBOC aims to slow, rather than reverse, any weakness. For derivative traders, this managed approach supports strategies that benefit from low volatility, such as selling out-of-the-money options on USD/CNY. The central bank is currently prioritizing stability over sharp currency movements.

Comparison to Historical Trends

A similar strategy was seen in 2023, when the PBOC managed the yuan against a strong dollar while the US Federal Reserve was raising interest rates. Given that US 10-year Treasury yields are stable around 4.35%, the reasons for the dollar’s strength remain. This history suggests that the PBOC will allow the USD/CNY rate to rise slowly and gradually instead of letting it spike suddenly. In the upcoming weeks, we should closely watch how near the spot price gets to the +/- 2% range around the daily reference rate. A consistent approach towards the weaker limit could indicate that market forces are starting to override the PBOC’s controlled management. This might signal an increase in volatility and a larger move in the currency pair. Create your live VT Markets account and start trading now.

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