The People's Bank of China is scheduled to release the USD/CNY reference exchange rate at approximately 0115 GMT.
The People's Bank of China (PBOC), China's central bank, is responsible for setting the daily midpoint of the yuan (also known as the renminbi or renminbi). 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.” It is currently +/- 2%.
How the process is done:
- Daily midpoint determination: Every morning, the People's Bank of China determines the midpoint of 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 trading that day.
- 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%, which means that the yuan can rise or fall a maximum of 2% from the midpoint during one 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 value of the yuan approaches the limit 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 the yuan to stabilize its value. This helps maintain a gradual and controlled adjustment of the currency's value.
previously:
- USD/CNH rises towards 7.30 as the People's Bank of China returns to supporting the yuan – fixing soon
This article was written by Eamonn Sheridan at www.forexlive.com.