Insights 
VT 
The People’s Bank of China (PBOC) is expected to set the USD/CNY reference rate at 7.1813. The setting of this rate is anticipated around 0115 GMT.
The PBOC determines a daily midpoint for the yuan against a basket of currencies, with a focus on the US dollar. This midpoint is based on market supply and demand, economic indicators, and international currency market changes.
Yuan Fluctuation and Trading Band
The yuan is allowed to fluctuate within a set range of +/- 2% around this midpoint, which serves as a guide for the day’s trading. This range can be adjusted by the PBOC in response to economic conditions and policy aims.
If the yuan’s value nears the edge of the trading band or shows excessive volatility, the PBOC might intervene. This intervention involves buying or selling yuan to maintain stability, ensuring a controlled adjustment of the currency’s value.
Goldman Sachs has revised its expectations for the yuan, anticipating a higher value. This adjustment reflects changing perceptions of China’s currency prospects. The forecasting and adjustments indicate ongoing attention to the yuan’s exchange rate dynamics.
Expectations and Market Reactions
The article explains that the People’s Bank of China (PBOC) sets a reference rate each morning for the Chinese yuan against the US dollar. This reference point influences how the yuan moves during the day. The bank allows a maximum 2% movement above or below that midpoint, which is decided using data such as foreign exchange trends, international currency shifts, and broader economic performance. If the yuan drifts too far or becomes erratic, authorities might step in and push it back in line by directly entering currency markets. Meanwhile, Goldman Sachs has changed its view, now expecting a stronger yuan, reflecting an improving outlook or adjustments in monetary policy interpretation.
This tells us that authorities are still paying close attention to exchange rate movements and are prepared to conduct active guidance when needed. We also see that forecasts by major firms are shifting, meaning expectations are adjusting—likely in response to global interest rate outlooks or domestic stabilisation efforts.
Now, where does that leave us? Well, the near-term direction remains sensitive to both domestic monetary policy nudges and international macroeconomic feedback. In practice, this means daily opening rates and volatility windows should be watched more closely than usual, because intervention risk is far from theoretical—it’s happening where volatility tests the ranges. There’s more value, then, in watching the build-up of spot levels around the outer edges of the band, rather than just reacting to headline policy actions.
We also need to accept that any model or strategy based solely on historical patterns in yuan volatility may underperform. For instance, when reference rates come in tighter to market expectations, that may not signal neutrality but rather tactical restraint—particularly when the forward curve narrows with it. We’re seeing that now, and it’s shifting pricing for swaps and options.
In terms of actionable strategy, calendar spreads need revisiting. The 1-week to 1-month differentials are drawing tighter on the back of this slightly more static management of the currency. It’s telling us not to chase realised vol, yet the implied side hasn’t fully adjusted. So there’s room in short-dated gamma if the market moves prematurely in response to rerates like those from Goldman.
Also worth noting is the slow build in skew towards yuan appreciation. That’s not just directional—it’s precautionary. There’s a divergence, driven by positioning, not just policy assumptions. Put-call ratios are nearing levels where we’d want to consider fading any further escalation in bullishness. It feels like the market’s gearing up for moderate appreciation, but not quite prepared for sharp overshooting.
So unless there’s a visible tilt in the daily fixings beyond what’s already implied by offshore forwards, we favour being more reactive and data-bound in the short term—save the thematic positioning for beyond quarter-end. Let the curve tell us what it wants to do before jumping ahead.
