© Reuters.

(Bloomberg) — China’s yuan fixing was weaker than expected for a second day, reinforcing speculation that the central bank wants to slow the currency’s biggest quarterly rally since 2008.

The People’s Bank of China set its daily reference rate at 6.7986 per dollar on Wednesday, after the greenback strengthened overnight. That was 43 basis points weaker than the average estimate in a Bloomberg survey, following a gap on Tuesday that was the widest in about two months. The yuan dropped as much as 0.23% to 6.7975 per dollar in early trading.

The Chinese currency has been rallying due to a slumping dollar, signs the economy is recovering from the virus pandemic, a yield premium over U.S. assets and optimism the country’s debt will be added to global indexes. The has jumped about 4% against the dollar this quarter, on track for its biggest such gain in 12 years.

“The fixing has been weaker for two days, which might be a signal that policy makers want to somewhat manage the pace of the rally,” said Hao Zhou, an economist at Commerzbank (DE:) AG (OTC:). “It is time for investors and policy makers to take a break and think about the pros and cons of the rally.”

The Chinese currency is flirting with its biggest quarterly advance in data going back to 1981, with the gain now just shy of a 4.2% surge to start 2008. The rally has come as the dollar slumped, sending the Bloomberg Dollar Spot Index to its lowest in two years last week. That measure of greenback strength was last up 0.13%, climbing for a fourth session to head for its highest in six weeks.

A rate premium over the U.S. is another factor bolstering the yuan. The yield on Chinese government bonds due in a decade over comparable U.S. notes is near the highest on record. Also helping sentiment are expectations that Russell will say this week that it plans to add China bonds to its flagship indexes.

Beijing took a relatively hands-off approach to yuan appreciation during its recent surge. That’s a departure from a few years ago when it tried rein in gains due to fears a strong currency would hurt exporters. This time around, China has changed its strategy for boosting growth, preferring to focus on cheapening imports and bolstering domestic consumption.

©2020 Bloomberg L.P.

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