SHANGHAI (Reuters) – Global investment houses rushed to cut their yuan forecasts as the Chinese currency heads for its worst month in decades as optimism sours amid a domestic economic slowdown and aggressive expectations of higher US interest rates.

JP Morgan lowered its forecast for the yuan twice in a week, and analysts at Standard Chartered, HSBC and others also turned bearish on the Chinese currency.

A median forecast from nine banks now expects the yuan to trade at 6.63 to the dollar at the end of the second quarter. A majority of them expect the yuan to weaken further to 6.71 towards the end of the year.

The yuan hit 6.6510 to the dollar on Friday, an 18-month low.

“Authorities could welcome a weaker yuan to support growth and exports as outflows are likely manageable,” Standard Chartered said, revising its end-June forecast down to 6.7 to the dollar from 6.35. previously.

Banks had previously forecast the currency to trade around 6.4 at the end of June in their annual outlook released late last year, as the Chinese currency rose steadily and was among the performing currencies in emerging markets.

The turnaround came amid the yuan’s 4.6% tumble against the dollar in April, which has the currency on track for its biggest monthly decline since China unified the official and currency exchange rates. market in 1994.

A deteriorating growth outlook, affected by the COVID-19 lockdowns, and the widening policy gap with the United States should also drive flows into the dollar in the near term, analysts said.

“We believe that the market-perceived monetary policy divergence between the Fed and the PBOC could peak in the second to third quarters,” said Wang Ju, head of Greater China FX and Rates Strategy at China. BNP Paribas, referring to the People’s Bank of China.

“After that, Fed tightening risks are likely priced in as China’s GDP may bottom out on policy stimulus,” Wang added, expecting the yuan to weaken to 6. 6 at the end of the second quarter before reaching a low of 6.7 at the end of the third quarter.

Here is a summary of some predictions for the Chinese currency:

INVESTMENT HOUSE Q2-2022 Q3-2022 end of 2022 Q1-2023 Q2-2023

UBS World Heritage 6.55 6.5 6.5 6.5

JPMorgan 6.7 6.75 6.8 6.8

MUFG Bank 6.6 6.65 6.7 6.65

Standard Chartered 6.7 6.65 6.6

HSBC 6.6 6.62 6.65 6.68 6.7

Capital savings 6.65 6.8 7

Banking Union 6.75 6.85 6.95 6.95

(Reporting by Winni Zhou and Andrew Galbraith; Editing by Sam Holmes)

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