China’s new bank lending has stumbled once again in 2025, prompting the People’s Bank of China (PBOC) to announce cuts of 25 basis points on various structural policy tools.

For forex traders, one key daily event remains the PBOC’s setting of the USD/CNY reference rate, typically published around 0115 GMT (2115 US Eastern time). This daily fixing is a critical indicator closely watched in Asian currency markets.

China uses a managed floating exchange rate system where the renminbi (yuan) is allowed to trade within a 2 per cent band above or below a central midpoint set by the PBOC each trading day. This midpoint is determined daily based on several factors: the previous day’s closing price, movements in major currencies—especially the US dollar—overall global FX conditions, and domestic economic variables like capital flows, growth momentum, and financial stability objectives.

Importantly, the midpoint is not a purely mechanical calculation. The PBOC exercises discretion to manage market expectations and influence exchange rate direction. After the midpoint is set, onshore USD/CNY can trade freely within the allowed band. Should market pressures push the yuan close to either edge, the PBOC may intervene by buying or selling yuan, adjusting liquidity, or instructing state-owned banks to moderate volatility.

For traders, the daily fixing offers more than just a technical reference point—it signals policy stance. A stronger-than-expected midpoint generally indicates the PBOC is resisting depreciation pressures, while a weaker midpoint suggests tolerance for yuan softness, often due to dollar strength or domestic economic challenges.

During times of heightened global volatility, such as shifts in US interest rate expectations, trade tensions, or capital flow concerns, the fixing’s importance increases. It provides valuable insight into Beijing’s currency management priorities, including competitiveness, capital stability, and market confidence.

Original Source: Eamonn Sheridan of investinglive.com