The People’s Bank of China (PBOC) controls the daily midpoint of the yuan, or renminbi (RMB), using a managed floating exchange rate system. This system allows the yuan to vary within a specific range, known as a “band,” around a central reference rate. Right now, this band is set at +/- 2%.

Daily Midpoint Determination

Every morning, the PBOC sets a midpoint rate for the yuan against a mix of currencies, especially the US dollar. This setting is influenced by market supply and demand, economic indicators, and global currency trends. The midpoint serves as the reference point for trading that day. The PBOC allows the yuan to fluctuate within a +/- 2% range around this midpoint. This means it can go up or down by as much as 2% from the midpoint in one trading day. The PBOC can change this range if necessary due to economic factors or policy goals. If the yuan approaches the limits of this trading band or experiences significant instability, the PBOC might step in by buying or selling the yuan, stabilizing its value. With an expected USD/CNY reference rate around 7.1081, it seems the central bank is guiding a slow, controlled weakening of the yuan. This is likely a strategy to support the economy rather than a loss of control. For traders, this means that even if the yuan weakens, the change will probably be gradual and carefully managed. This approach makes sense given the current economic data from September 2025. The interest rate gap is crucial since US government bond yields are considerably higher than those of Chinese sovereign debt, which encourages capital to flow out of the yuan. Together with last month’s weak export figures, this justifies using the exchange rate as a support tool.

Economic Implications and Strategy

Thanks to the PBOC’s active management, we shouldn’t expect major volatility in the coming weeks. The daily midpoint setting and the +/- 2% trading band will likely limit any extreme daily shifts. This makes low-volatility strategies appealing. The key will be watching how strongly the central bank supports the edges of this band if the market challenges its limits. This scenario is similar to the managed depreciation seen in the mid-2010s, where the currency weakened gradually without causing panic. The biggest risk for derivative positions now lies not in a sudden collapse, but in an unexpected policy shift from the PBOC. We will be monitoring any changes in the daily fixing away from market expectations, as this would signal a significant shift in their strategy. Create your live VT Markets account and start trading now.

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