According to insights from Goldman Sachs, China’s yuan looks set to extend its downward spiral against the US dollar, hamstrung by the country’s less-than-stellar economic growth.

In a significant shift from previous optimism, Goldman Sachs analysts revised their three-month forecast for the yuan from a rally target of 6.8 per dollar to a rather sobering 7.1 per dollar. As of Monday, the yuan-dollar exchange rate hovered around 7.035.

This comes in the wake of the yuan’s slide past the psychologically significant threshold of 7 per dollar, a move spurred by fresh indications of a slowdown in the Chinese economy.

In their Friday note, Goldman Sachs analysts shared, “Sentiment towards Chinese activity and the currency was already fairly negative through April, and yet that has weakened further in May following releases of disappointing data.”

Despite this, the yuan’s future isn’t all doom and gloom. Analysts expect a rebound, albeit slower than previously anticipated. Their revised six-month and 12-month forecasts predict the yuan will reach 7.0 and 6.8 per dollar, respectively—both decidedly more conservative than the earlier predictions of 6.7 and 6.5.

Traditionally, China’s central bank—the People’s Bank of China (PBOC)—has strived to keep the yuan from breaching the 7-dollar barrier. Indeed, on Friday, they pledged to curb currency speculation, causing a 0.5% bump in the yuan.

However, Goldman Sachs believes the PBOC will also seek to jumpstart the economy to compensate for underwhelming growth, a letdown to investors who were hoping for a post-Covid-lockdown surge. Anticipating policy moves by the end of Q2, the analysts predict a 25 basis points cut in reserve requirement ratios and a dialing down of interest rates.

The Goldman Sachs note reads, “Further out, a stable China activity picture along with lower core rate volatility should allow the CNY to recover, but the scope for CNY strength is likely to remain limited without further support from better data or policy.”

As for the US dollar, Goldman Sachs predicts near-term growth against a broad range of global currencies, albeit anticipating a “bumpy deceleration” from its current momentum this year. The analysts cite factors such as potential further interest rate hikes, positive sentiment from debt ceiling negotiations, and underperformance in foreign markets as tailwinds for the greenback.