Barclays sees even lower yuan in near term

Analysts at Barclays Research revised their forecasts for the Chinese yuan in order to factor in greater weakness.

In a research note sent to clients, the investment bank said that "US-China trade negotiations have shifted towards our escalation scenario earlier than we had anticipated."

"The probability of further escalation via more tariffs and non-tariff measures has also risen, as the outlook for the negotiations is complicated by Chinese officials adopting a more hardline stance and the US labelling China a currency manipulator," they added.

In the near term, they expected that the People's Bank of China would look to anchor market expectations for the US dollar-yuan exchange rate at around 7.05-7.10.

But with the Chinese economy most probably set to slow by more into 2020 and after the PBoC signalled that it was open to additional currency adjustments, the yuan's CFETS effective exchange rate was now seen falling to 90.0 points and the Greenback rising to 7.25 into 2020.

For over the next year, the greatest change to Barclays's forecasts was for the anticipated value of the yuan in the fourth quarter of 2019, with the investment bank now projecting that the US dollar would rise to 7.20 yuan, compared to a previous forecast of 6.95.

Barclays's forecast for the second quarter of 2020 on the other hand was little changed at 7.25, versus 7.20 beforehand.