The People's Bank of China (PBOC) is expected to set the USD/CNY reference rate at 7.1452, according to a Reuters estimate. This reference rate, due around 0115 GMT, is a critical benchmark that influences currency trading in China and reflects the PBOC's monetary strategy. The People's Bank of China, serving as the nation's central bank, holds the responsibility of determining the daily midpoint for the yuan, which is also known as the renminbi (RMB).

Operating under a managed floating exchange rate system, the PBOC allows the yuan's value to oscillate within a designated fluctuation range, or 'band,' around the central reference rate or 'midpoint.' Currently, this band is set at +/- 2% of the midpoint. Understanding the mechanics of this process is essential. Each day, the PBOC formulates a midpoint for the yuan relative to a selection of currencies, with a predominant focus on the US dollar. Several elements influence the setting of this midpoint, including market supply and demand dynamics, economic indicators, and global currency market fluctuations. This midpoint is pivotal, serving as the benchmark for trading activities throughout the day.

Additionally, the trading band implemented by the PBOC allows the yuan to fluctuate within a specified range around this midpoint. Set at +/- 2%, the band signifies the maximum potential appreciation or depreciation of the yuan from the midpoint during a single trading session. The PBOC retains the authority to modify this range, contingent upon prevailing economic circumstances and policy objectives.

Moreover, should the yuan's value near the boundaries of this trading band or exhibit pronounced volatility, the PBOC may engage in market intervention. Such intervention involves purchasing or selling the yuan to mitigate extreme fluctuations and stabilize its value. This strategic move ensures that the yuan's adjustments remain controlled and gradual, aligning with the PBOC's broader fiscal policies and economic goals.