The Chinese yuan hit a three-year high in onshore markets as the central bank said it was comfortable with a recent rally by setting a high daily benchmark rate.

The currency gained 0.3% to 6.3943 per dollar in onshore markets, the highest since June 2018, while advancing 0.4% abroad. The People’s Bank of China fixed its fixing at 6.4099 to the dollar, in line with the average estimate of a Bloomberg survey of traders and analysts.

The benchmark rate helped allay fears that the PBOC is looking to slow a rally in the yuan that has made Asia’s best-performing currency this year. Traders are keeping a close watch on the central bank after the recent mixed messages from officials on whether the currency should continue to appreciate to contain rising prices of imported commodities.

“They are unlikely to put up a hard defense for a specific level as long as market supply and demand remains relatively balanced,” said Becky Liu, head of macroeconomic strategy for China at Standard Chartered Bank Ltd. in Hong Kong. The correction “suggests that the PBOC is returning to a more neutral position,” she said.

State media also responded with comments in favor of the yuan. The China Securities Journal cited analysts on Wednesday as saying the currency could rise further due to the country’s economic recovery and capital inflows. Shanghai Securities News reported that the yuan could rise as high as 6.2, citing Citic Securities Co., the country’s largest brokerage firm.

The currency has gained more than 2% this year in onshore markets. On Tuesday, it surpassed 6.4 against the dollar in offshore markets, reaching its highest level since June 2018.

Traders are betting more on the gains of the yuan.

The offshore yuan’s one-month risk reversal fell below zero for the first time in more than two years this week, suggesting that investors are expecting further appreciation. Dollar-yuan futures slipped to a three-month low, also reflecting confidence in the Chinese currency.

“Basically, there is still an argument for the appreciation of the yuan, especially since the dollar is weaker,” said Eddie Cheung, senior emerging markets strategist at Crédit Agricole CIB. “The key for the authorities is to ensure that the markets don’t become too one-sided. As long as this remains the case, the yuan may still appreciate. “

Traders were concerned about the position of the PBOC ahead of Wednesday’s fixing, as Beijing had taken various measures to slow the currency’s appreciation. Public banks were seen bidding for dollars on Tuesday as the yuan broke through the 6.4 level in offshore markets. This month, the authorities had set the fixing at lower than expected levels in all but four sessions.

The currency’s advance since April has been fueled by dollar weakness, as Federal Reserve officials pushed expectations lower. There is also growing demand for the yuan as foreign investors have piled into Chinese bonds for their yields and inclusion in global indices. The country’s economic rebound after the pandemic also helped to boost sentiment.

The onshore yuan gained 0.2% to 6.3975 at 11:22 am in Shanghai, while the offshore currency rose 0.4% to 6.3880.