The People’s Bank of China (PBOC) will set the USD/CNY reference rate at 7.1667, according to estimates. The PBOC’s daily responsibility includes establishing a midpoint for the yuan against a basket of currencies, particularly the US dollar.

Fluctuation Controls

This reference rate allows the yuan to fluctuate within a trading band of +/- 2%. The central bank’s decisions consider market supply, demand, economic indicators, and international currency fluctuations.

If the currency approaches the limits of this band or becomes volatile, the PBOC may intervene. Such intervention involves buying or selling yuan to ensure stability and a gradual adjustment in value.

The PBOC’s actions are derived from economic conditions and policy goals. This managed floating exchange rate system helps maintain a controlled fluctuation for the yuan.

Given the People’s Bank of China is expected to guide the yuan at 7.1667 against the dollar, we are watching its management of the currency very closely. This action is significant, especially after recent data showed China’s exports for July 2025 unexpectedly fell by 1.5%, putting gentle depreciation pressure on the yuan. The daily fix is therefore a primary signal of the central bank’s immediate intentions.

This pattern of setting the reference rate slightly stronger than market expectations suggests a policy aimed at slowing down, not reversing, any potential weakness. For derivative traders, this controlled environment supports strategies built on low volatility, such as selling out-of-the-money options on USD/CNY. The central bank is signaling it prefers stability over sharp movements for now.

Comparison to Historical Trends

We saw a very similar approach back in 2023, when the PBOC consistently managed the yuan against a strong dollar as the US Federal Reserve was raising interest rates. With US 10-year Treasury yields currently firm around 4.35%, the underlying reasons for dollar strength persist. This history suggests the PBOC will likely permit a slow, gradual rise in the USD/CNY rate rather than allowing an abrupt breakout.

The key indicator to watch in the coming weeks will be how close the spot price trades to the +/- 2% band around the daily fix. A sustained push toward the weaker limit would be a sign that market forces are beginning to overpower the PBOC’s controlled management. This could be a trigger to prepare for a pickup in volatility and a potentially larger move in the currency pair.

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