FOREX NEWS & BLOG

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.

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

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BMO analysts on the CPI data due on 12 March 2025 at 0830 US Eastern time.

Analysts at BMO argue that Wednesday’s Consumer Price Index (CPI) report will be a crucial gauge for the Federal Reserve’s path to 2.0% inflation, providing essential input for February’s core Personal Consumption Expenditures (PCE) forecast.

• Economists expect a 0.3% monthly gain in core CPI—lower than January’s 0.446% but still high enough to sustain concerns that inflation may prove more persistent than anticipated.
• While such a reading wouldn’t be ideal for the Fed, it wouldn’t derail the broader disinflation narrative, keeping the possibility of multiple rate cuts this year intact.

BMO go on to note that beyond the headline inflation figures, investors will focus on housing services and non-housing “supercore” inflation, two categories that Fed Chair Jerome Powell flagged as areas for ongoing progress. Both are expected to show signs of moderation, though still at historically elevated levels. However, BMO suggests that even if inflation components exceed expectations, a full assessment will require Thursday’s Producer Price Index (PPI) data, which last month played a key role in softening market concerns over an unexpectedly strong CPI reading.

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

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Bank of Japan Governor Ueda

• Markets set long-term rates.
  We don’t see a big divergence between our view and that of the markets when asked about recent long-term rate rises.
  It is true that long-term rates have been rising as a trend since last year.
  Long-term rate movements reflect the market’s view on economic and price developments, as well as changes in overseas rates.
  It is natural for long-term rates to move in a way that reflects the market’s outlook for the short-term policy rate.
• The rise in long-term rates is likely to push up the cost of funding government finances.

It wasn;t too long ago that Ueda was called upon to calm the market over higher long term rates. You may recall the trashing yen stood that day until Ueda calmed everyone down with his promise to step into the JGB market with bids, if necessary:

• USD/JPY rockets 150 points higher as JGB yields surge

• More from BOJ’s Ueda – Ready to respond to abnormal market moves
• Bank of Japan Governor Ueda sees the bright side of higher interest rates
• Bank of Japan Governor Ueda said abnormal moves would cause the bank to act

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

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