The People’s Bank of China is scheduled to set the exchange rate of the US dollar against the Chinese yuan at around 0115 GMT.
The People’s Bank of China, the central bank of China, is responsible for setting the daily midpoint of the yuan (also known as the renminbi or RMB). The People’s Bank of China follows a managed floating exchange rate system that allows the value of the yuan to fluctuate within a certain range, called a “band,” around a central reference rate or “midpoint.” This band is currently +/- 2%.
How does the process work:
- Daily midpoint setting: Every morning, the People’s Bank of China sets the midpoint for the yuan against a basket of currencies, primarily the US dollar. The central bank takes into account factors such as market supply and demand, economic indicators, and international currency market fluctuations. The midpoint serves as a reference point for that day’s trading.
- Trading range: The People’s Bank of China allows the yuan to move within a specified range around the midpoint. The trading range is set at +/- 2%, meaning that the yuan can rise or fall by a maximum of 2% from the midpoint during a single trading day. This range is subject to change by the People’s Bank of China based on economic conditions and policy objectives.
- Intervention: If the yuan’s value approaches the limits of the trading range or experiences excessive volatility, the People’s Bank of China may intervene in the foreign exchange market by buying or selling yuan to stabilize its value. This helps maintain a gradual and controlled adjustment in the currency’s value.