A day after Hong Kong banks received permission to offer yuan services, the attention has switched to financial headlines further from home. The announcement of the yuan services agreement on Tuesday coincided with a few other financial milestones - a lifetime high for the euro against the US dollar and gold reaching a seven-year peak at US$400. For residents in Hong Kong, it is the US dollar or the HK dollar's function as a store of value that has become an issue close to their hearts. The US dollar was a lot easier to like when it was a strong currency. We are all pegged to the US dollar and it seems to be increasingly driven by President George W. Bush's own deficit problems and how long he decides to spend in Iraq. If the HK dollar and the yuan do eventually join the rest of the world and come off the US dollar rollercoaster, the odds must be increasing that they will have to jump together. Hong Kong is more closely intertwined with China than ever before. Visitors to Shenzhen could already be excused for assuming both currencies were pegged to each other rather than the greenback. The market could be telling us that people are preparing for this eventuality. In the past two years, dollar bears have had easy pickings. There is now even talk of the 'dollar carry' trade, replacing the 'yen carry' of the 1990s. Borrow cheap in a depreciating US dollar and invest in just about anything, preferably a hard asset or currency, and you could make money. The yuan could well be next. Hutchison Whampoa chairman Li Ka-shing is usually ahead of the curve where investment timing is concerned and Hutch's colossal US$5 billion bond issue could also act as a smart currency hedge as much as straight financing. Against this backdrop, one of the first reactions of financially savvy Hong Kong residents has been to size up new opportunities to build speculative positions in the yuan. While it is the capital gain they are after, money can be taken out from under the mattress as any interest rate would be better than the almost zero on offer for US and HK dollars. These speculators are buoyed by a growing consensus that China will ultimately have to revalue one way or another, whether it be a widening of its trading band or a straight re-pegging. Economists will continue to argue the merits of such a move, but it is less easy to dispute which direction capital is flowing. A lot of the hot money that leaks out of China's capital account each year is coming back. By contrast, September's figures showed a dramatic 90 per cent fall off in net purchases of US securities by foreigners - to US$4 billion from US$50 billion. Has the penny finally dropped?