The euro may not be the only victim of a strong US dollar. If the dollar keeps flexing its muscles, some analysts said Hong Kong's economy could get hurt in a number of ways namely, deflation, higher interest rates, diminished competitiveness and as a result, slower economic growth. 'Such a strong Hong Kong dollar environment definitely is not helpful for attracting capital flows and that could have negative implications,' Bank of America currency economist Frank Gong Fangxiong said. 'That's why we have been seeing not only a lot of selling pressure but also a steepening of the Hibor (Hong Kong interbank offered rate) curve.' The euro fell to a record low of 88.53 US cents early yesterday in a continuation of recent losses, before bouncing back on speculation of central bank intervention. The dollar remained strong at 109 yen range against the Japanese yen, with trade limited because of the Golden Week holiday. As the yen and other free-floating Asian currencies weaken against the US dollar, Hong Kong's linked dollar loses relative competitiveness. 'If the strong dollar environment persists . . . the worries about the peg may reappear, pushing Hong Kong dollar forwards at the long end even higher,' Mr Gong said. Other analysts were less worried. Indeed, some have labelled the peg concerns as alarmist. ABN Amro North Asian economist Eddie Wong said regional currencies had not fallen as steeply as the euro. Thus Hong Kong's competitiveness against other regional currencies was not nearly as precarious as it was in the thick of the financial crisis in 1998. He said the US dollar would lose steam, pointing to its balance of payments woes and related efforts to slow the economy. Last year the US current account deficit was worth a weighty 3.7 per cent of its gross domestic product and ABN Amro estimated that could reach 4.5 to 5 per cent of GDP this year. 'For such a big country that's totally unsustainable,' Mr Wong said. For him, the question is not whether the US dollar will weaken but who will benefit from a sell-down of US assets. 'The question is whether this capital will flow to Asia?' ING Barings chief economist for Asia Tim Condon sees no losers in the situation. The stronger US dollar is a reflection of US economic strength while the weaker euro will quicken economic growth in euroland. Both scenarios point to world growth. 'Hong Kong benefits to the extent that global growth is good for it,' Mr Condon said. He did not believe that Hong Kong competitiveness was in danger. 'You're hard-pressed on the numbers to substantiate those concerns,' Mr Condon said. Exports have been rising both in the mainland and in Hong Kong, where they have seen double-digit year-on-year increases for five consecutive months. Mr Condon said this showed the fixed exchange systems had not hurt either's exports. 'What's most important is strong growth . . . The price is a second order of importance.'