SHANGHAI, May 19 (Reuters)The yuan eased against the dollar on Thursday as market sentiment deteriorated after some major global investment banks lowered their expectations for China’s economic growth.

Concerns over a potential repeat of Shanghai-style shutdowns in other major Chinese cities have also put pressure on the currency, as the central government appears in no mood to ease its strict zero COVID policy.

Standard Chartered has become the latest financial institution to cut its growth forecast for China in 2022, dropping it to 4.1% from 5% to reflect an economic contraction in April due to COVID-19-related disruptions.

“The quality of near-term growth will be adversely affected, in our view,” the bank said in a note.

“On the one hand, China may need to rely on infrastructure investment, which tends to be credit-intensive and have a high carbon footprint, to revive the economy.”

Goldman Sachs analysts lowered their growth forecast for China in 2022 to 4% from 4.5% a day earlier, also citing COVID-related damage to the economy in the second quarter.

Before the market opened, the People’s Bank of China (PBOC) set the midpoint rate CNY=PBOC at 6.7524 on the dollar, weaker than the previous patch of 6.7421.

In the spot market, the onshore yuan CNY=CFXS opened at 6.7648 to the dollar and was changing hands at 6.7597 midday, 67 pips or 0.1% lower than the previous end-of-session close.

Some forex traders said the yuan was likely to consolidate to the firmer side of the closely watched 6.8 to the dollar level as markets wait for a clearer picture of the resumption of activity in Shanghai after a one-day lockdown. week.

“Shanghai’s easing of restrictions has been disappointing with a large majority of stores still closed and tight restrictions hampering operations,” Maybank analysts said in a note.

“Fears that another major city could be subject to a Shanghai-like lockdown continue to undermine sentiment.”

On Thursday, Deputy Mayor Zhang Wei told a press conference that Shanghai would start allowing more businesses in COVID-free zones to resume normal operations from early June, as the city prepares for the end of the lockdown.

But analysts say it could take weeks for business conditions to normalize and consumption could remain weak even after industrial production bottoms out.

Separately, Premier Li Keqiang was quoted by state media as saying that China has policy space to deal with challenges as downward pressure on the economy mounts.

At noon, the global dollar index .DXY fell to 103.627 from the previous close of 103.81, while the offshore yuan CNH=D3 was trading at 6.7729 to the dollar.

The yuan market at 03:43 GMT:

SPOT ON LAND:

Article

Running

Previous

To change

PBOC midpoint CNY=SAEC

6.7524

6.7421

-0.15%

spot yuan CNY=CFXS

6.7597

6.753

-0.10%

Divergence from midpoint*

0.11%

YTD spot change

-5.99%

One-time change since 2005 reassessment

22.44%

Key indexes:

Article

Running

Previous

To change

Thomson Reuters/HKEX CNH Index

100.43

100.57

-0.1

dollar index

103.627

103.81

-0.2

*Divergence of the dollar/yuan exchange rate. A negative number indicates that the spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall by 2% from the official midpoint rate it sets each morning.

CNH OFFSHORE MARKET

Instrument

Running

Difference with onshore

Offshore Spot Yuan CNH= *

6.7729

-0.19%

Offshore undeliverable forwards CNY1YNDFOR= **

6.802

-0.73%

*Premium for offshore spot on onshore CNY=CFXS

**The figure reflects the difference from the official PBOC midpoint, as non-deliverable futures are settled relative to the midpoint. CNY=SAEC.

(Reporting by Winni Zhou and Andrew Galbraith; Editing by Kim Coghill)

(([email protected]; +86 21 2083 0100; Reuters Messaging: [email protected]))

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