The People’s Bank of China (PBOC) manages the daily midpoint for the yuan, which is also called the renminbi or RMB. The system allows the currency to fluctuate within a specific range or “band” around this midpoint, typically set at +/- 2%.
Every morning, the PBOC establishes the midpoint against a basket of currencies, focusing on the US dollar. This process accounts for market supply and demand, economic data, and global currency shifts.
Daily Fluctuation Range
The PBOC permits the yuan to shift within a 2% range around the midpoint. This trading band can appreciate or depreciate the currency by a maximum of 2% in a trading day. Adjustments to the range are made based on economic conditions and policy goals.
When the yuan nears the trading band’s limit or shows high volatility, the PBOC may intervene. This involves buying or selling the yuan to stabilize its value. This process aims to ensure a controlled currency adjustment.
The expected USD/CNY fixing at 7.2033 signals that the central bank is continuing to permit a weaker yuan. This move appears consistent with recent economic data, as China’s Q2 2025 GDP growth came in slightly below expectations at 4.8%. We view this as an effort to bolster a slowing economy and support the export sector.
Currency Pressure and Strategy
Traders should monitor the offshore yuan (CNH) spot price in relation to the daily midpoint set by the PBOC. When the spot price consistently trades weaker than the central bank’s fix, it confirms strong underlying market pressure for depreciation. This has been a recurring theme throughout mid-2025, especially after the disappointing July export data showed a 1.5% year-over-year decline.
Given this outlook for a managed, gradual depreciation, buying longer-dated call options on the USD/CNY pair could be a sound strategy. However, because the PBOC actively works to prevent sharp, volatile moves, implied volatility is likely to stay low. This creates potential opportunities for selling short-dated, out-of-the-money options to collect premium from the slow grind higher.
We must remember the playbook used in 2023 and 2024, where authorities guided the yuan weaker but intervened to prevent disorderly selling. While the +/- 2% trading band exists, intervention from state-owned banks often begins well before that limit is reached. Traders should not expect a free-fall but rather a controlled descent managed by the central bank.
This currency trend is also heavily influenced by the policy differences between China and the United States. The US Federal Reserve held interest rates steady at its July 2025 meeting, citing a resilient labor market and stubborn core inflation. This contrasts with the PBOC’s recent rate cuts, reinforcing the fundamental strength of the US dollar against the yuan.
