The People’s Bank of China (PBOC) sets a daily midpoint for the yuan, known as renminbi (RMB). This is part of a managed floating exchange rate system, which allows the yuan’s value to shift within a range of +/- 2% around this reference rate.

Setting The Daily Midpoint

Every morning, the PBOC calculates this midpoint mainly against the US dollar. They take into account market supply and demand, economic data, and changes in global currency markets. This midpoint serves as a guide for daily trading. The PBOC allows the yuan to move within a +/- 2% band around the midpoint. This band can be adjusted depending on economic conditions and policy goals. If the yuan approaches the limits of this trading band or experiences too much volatility, the PBOC may step in by buying or selling the yuan. This helps to keep the currency’s value stable and ensures a gradual adjustment, promoting stability in the foreign exchange market. The expected reference rate of 7.1551 signals that the People’s Bank of China aims to stabilize or strengthen the yuan. This indicates that the central bank is actively working to prevent further depreciation.

Opportunities And Risks

With the yuan able to move only 2% around the daily midpoint, we have a clear trading range. This setup makes selling volatility appealing, especially since one-month implied volatility on USD/CNH options is at a yearly low of 3.8%. Traders may consider selling out-of-the-money puts and calls to earn premiums. This policy direction appears to be backed by recent economic data, boosting our confidence. After a tough 2024, China’s industrial production increased by 4.5% year-over-year in July 2025, and exports are showing steady recovery. A stable currency can attract foreign investment and prevent capital outflows. It’s important to keep in mind the sharp drop we saw in late 2023 when the rate exceeded 7.30. The central bank’s ability to intervene means that while the outlook seems positive, betting on a strong appreciation carries risks. The PBOC prioritizes stability rather than a one-sided rally, which limits profit potential on straightforward trades. Create your live VT Markets account and start trading now.

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