Insights 
VT 
The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also called renminbi (RMB), as part of its managed floating exchange rate system. This system allows the yuan’s value to vary within a specific range of +/- 2% around the reference rate or “midpoint.”
Setting The Daily Midpoint
Each morning, the PBOC determines this midpoint, primarily against the US dollar, by considering market supply and demand, economic indicators, and changes in international currency markets. This midpoint acts as a guide for daily trading.
The PBOC permits the yuan to fluctuate within a +/- 2% band around the midpoint. The band can be adjusted by the PBOC according to economic conditions and policy aims.
If the yuan nears the trading band limits or undergoes excessive volatility, the PBOC may intervene by buying or selling the yuan. This action is taken to maintain a controlled and gradual adjustment of the currency’s value, ensuring stability in the foreign exchange market.
The expected reference rate of 7.1551 is a clear signal from the People’s Bank of China. This consistent setting of a strong “fix” suggests a policy lean towards stabilizing or strengthening the yuan. For us, this means the central bank is actively managing against further depreciation.
Opportunities And Risks
With the yuan allowed to move only 2% around this daily midpoint, we see a defined trading range. This environment makes selling volatility an attractive strategy, especially with one-month implied volatility on USD/CNH options currently sitting near yearly lows of 3.8%. Traders might consider selling out-of-the-money puts and calls to collect premium.
This policy direction seems supported by recent economic data, which helps build our confidence. After a challenging 2024, China’s industrial production grew by 4.5% year-over-year in July 2025, and exports have shown a modest but steady recovery. A stable currency helps attract foreign investment and prevent capital outflows.
We should remember the sharp depreciation we saw in late 2023 when the rate pushed past 7.30. The central bank’s power to intervene means that while the direction seems clear, any bets on a runaway appreciation are risky. The PBOC’s goal is stability, not a one-way rally, limiting the potential profit on simple directional trades.
