Chinese authorities put the hurt on currency traders who had bet on a weaker yuan for a second day Thursday. In the process, are they also endangering the strong dollar narrative at the heart of many market forecasts?

That is the question posed by Kit Juckes, global macro strategist at Société Générale, in a Thursday note. It comes after a new wave of liquidity tightening by China’s central bank sent the yuan soaring to its strongest level versus the dollar since mid-November in offshore markets, marking a second straight day of sharp gains.

The dollar was weaker across the board, losing ground against major rivals including the euro EURUSD, -0.26% and the Japanese yen USDJPY, -0.21% , and triggered the largest one-day drop for the ICE dollar index DXY, +0.07% since June.

A slow grind higher by the dollar versus the yuan USDCNY, +0.17% is a “key element” of a market outlook that calls for continued dollar strength, he notes.

It’s not the only argument for a stronger dollar, he acknowledges, as “the prospect of U.S. economic outperformance fueled by easier fiscal policy and the implications for Fed policy which contrast so sharply with what the [European Central Bank] and [Bank of Japan] are doing, along with the rise in oil prices and concern about a resurgence in protectionist behavior, may matter more.”

But Juckes notes that the surge higher in short-term, offshore yuan USDCNH, +0.29% rates echoed a move seen around this time last year (see chart below) when tighter liquidity “triggered a rally for the yuan and set the stage for the dollar’s reverse—a 6% trade-weighted fall between mid-January and early May that was only fully reversed by the presidential election.”

But why are Chinese authorities putting upward pressure on the yuan, at least in the offshore market?

The move comes after global investors appeared increasingly confident that the Chinese currency was due to weaken further. The Wall Street Journal quoted an unnamed government adviser who said the decision to tighten liquidity in the offshore markets was aimed at discouraging investors from piling on bets against the currency.

The measures follow a tightening of capital controls designed to prevent yuan outflows after data showed a continued fall in China’s forex reserves.

There is plenty of doubt, however, over the durability of the yuan surge. Here’s David Rees of Capital Economics, in a Thursday note:

Like last year, though, we doubt that this latest bout of renminbi strength will continue for much longer. After all, the recent rally in the dollar means that the renminbi has appreciated in trade-weighted terms. And with the euro EURUSD, -0.26% and yen USDJPY, -0.21% likely to weaken against the dollar during the course of this year on account of diverging monetary policies in Europe and Japan relative to that in the US, the renminbi would need to weaken against the dollar just to simply tread water in trade-weighted terms. Indeed, given that we forecast the euro to weaken to $0.95/€ and the yen to head towards ¥130/$, the renminbi would need to depreciate to around 7.3/$, from 6.89/$ currently, in order to hold its ground in trade-weighted terms (see chart below).

Juckes isn’t looking for a sustained rally by the yuan either, describing tighter capital controls as “stop-gap measures that may plug one hole but won’t prevent another emerging elsewhere.”

Further weakness for the offshore and, more important, the onshore yuan seem “inevitable,” as well as desirable for the Chinese economy, he wrote. But “challenging the market narrative that has seen investors and traders pile into the dollar since early November is enough to trigger a sharp cutback of [dollar] longs, not just in USD/CNH but across G-10 FX until liquidity conditions ease.”