Hong Kong dollar plumbs to the weak end of its trading band as US rates rise
- The Hong Kong dollar retraced to as low as HK$7.8445 per US dollar last week, its weakest since October 2019
- One-month US dollar Libor, a benchmark lending rate, is around 0.6 per cent – its highest since April 2020
Surging US yields and a surfeit of cash in the local banking system have pushed the Hong Kong dollar to its weakest since late-2019, near levels at which the central bank might be forced to defend the peg.
The Hong Kong dollar is pegged to a tight band of between 7.75 and 7.85 versus the US dollar. It fell to as low as HK$7.8445 last week, its weakest since October 2019.
“The interest rate differential (between the US and Hong Kong) is pushing the exchange rate to the weak side,” said Raymond Yeung, chief economist for Greater China at ANZ, adding that this difference was caused by cash supplies in the domestic banking system being in surplus at a time when the US Federal Reserve was getting aggressive about monetary tightening.
One-month US dollar Libor, a benchmark lending rate, is around 0.6 per cent – its highest since April 2020, on the prospect of faster Fed rate hikes.
In contrast, the Hong Kong equivalent, one-month Hibor, is under 0.2 per cent and barely above its pandemic lows due to the abundance of cash in the Hong Kong financial system.