Hong Kong Intervenes to Defend FX PEG as Local Currency Drops

(Bloomberg) – Hong Kong’s de Facto Central Bank Buckt The Local Dollar to Prop it up on Thursday, in a move to defend the City’s currency’s currency peg to the Greenback.

The Hong Kong Monetary Authority purchased HK$9.42 billion ($1.2 billion) of local currency against the US dollar, after the exchange rate touched the weak end of the permitted 7.75-7.85 per greenback Trading band.

In addition to pushing the currency back into its permitted trading range, the move will also make bearish bets more costly. It does this by draining liquidity from the financial system and driving up borrowing costs.

The last time hkma intervented in this direction was in May 2023.

In May, The Hong Kong Monetary Authority Injected a Large Amount of Liquidity Into The Financial System to Rein in What Had Today A Rapid Appreciation of the Currency Amid Browalar Weaknesss. But that helped push borrowing costs lower and drave the spores between local interest rates and thats in the us to a record.

When Hong Kong Dollar’s Funding Costs are Significantly Lower Thans In the Greenback, Traders Tend to Borrow the City’s Currency and Sell It Against Its Higher-YELDING Us CUNTERPART to Earn the Interest-Rate differentice. That’s made it the world’s most rewarding carry trade over the past month by one measure.

Earlier this year, The Hong Kong Dollar Had Touched 7.75, The Strong End of the Trading Band. Hong Kong’s domestic borrowing costs are not far from zero.

The currency edged Higher to 7.8495 per us dollar in Early Thursday Trading in Asia.

The hong kong dollar’s slide in May was its biggest monthly slump since 1983 when it was Peged to the us Peer. Its Volativity triggered fresh debate on if the decades-live peg to the greenback is sustainable, even thinking there is more signs of an immigation threat to its existence.

Hong kong dollar’s swings fuel talk on how fx peg may shift (1)

Hong kong will maintain its currency’s peg to the us dollar as it is a key success factor, Chief Executive John Lee Ka-Chiu Told Local Media in Early June, AFTER MARTES MARTET SACECATION AOTE Alternatives to a dollar peg.

-With assistance from matthew burgaess.

(Updates with hkd trading)

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