PBOC is expected to set the USD/CNY reference rate at 7.0240 – Reuters estimate

The People's Bank of China (PBOC) is set to announce the daily USD/CNY reference rate at approximately 01:15 GMT. This rate is considered one of the most closely monitored signals in Asian forex markets. China operates a managed floating exchange rate system, allowing the yuan to trade within a designated band around the PBOC's daily setting. The current trading band allows fluctuations of plus or minus 2% from the official midpoint during onshore trading hours. Every morning, the PBOC determines this midpoint based on various inputs, including the previous day's closing price and global currency movements, particularly against the US dollar. The process involves significant policy discretion, indicating that the midpoint reflects more than just mechanical calculations. Once announced, the USD/CNY can fluctuate within the set band, with PBOC potentially intervening to mitigate excessive volatility. A stronger midpoint is often seen as a sign of PBOC resisting depreciation pressures, whereas a weaker fixing may indicate acceptance of a softer currency, especially in response to US dollar strength or domestic economic challenges. In times of market volatility, such as during shifts in US interest rates or trade tensions, this fixing takes on greater significance, offering insight into Beijing’s currency strategies and overall market confidence.