PBOC is expected to set the USD/CNY reference rate at 7.2981 – Reuters estimate

People’s Bank of China USD/CNY reference rate is due around 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 renminbi or RMB). The PBOC 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’s currently at +/- 2%.

How the process works:

• Daily midpoint setting: Each morning, the PBOC sets a 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.
• The trading band: The PBOC allows the yuan to move within a specified range around the midpoint. The trading band is set at +/- 2%, meaning the yuan could appreciate or depreciate by a maximum of 2% from the midpoint during a single trading day. This range is subject to change by the PBOC based on economic conditions and policy objectives.
• Intervention: If the yuan’s value approaches the limit of the trading band or experiences excessive volatility, the PBOC may intervene in the foreign exchange market by buying or selling the yuan to stabilize its value. This helps maintain a controlled and gradual adjustment of the currency’s value.

There’s been some info from China over the Christmas break:

Catch up – World Bank raised its 2024 China growth forecast to 4.9%, from 4.8% previously

Catch up – Further supportive measures in store for China housing sector in 2025

Catch up – China revises up 2023 GDP by 2.7% from previous estimate

ICYMI: China’s top legislature set to convene annual session on 5 March next year

• Chinese People’s Political Consultative Conference (CPPCC) on March 4
• China’s National People’s Congress will be held March 5, 2025

People’s Bank of China injects 300 bn yuan in a 1 year MLF at unchanged rate of 2.00%

China has passed a law introducing a value added tax. Will take effect on January 1 2026 according to Xinhua …. another year away

This article was written by Eamonn Sheridan at www.forexlive.com.