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Hong Kong sells more US dollars to protect currency rate


Hong Kong has sold more foreign exchange reserves to maintain long term with US dollarbringing its total revenue this year to $7.24 billion.

Pressure on Hong Kong’s currency is part of turmoil in global foreign exchange markets. US Dollar Rises As Investors Adjust a deteriorating economic outlook and prepare for active action by the US Federal Reserve to bringing decades-high inflation back under control. The Fed on Wednesday raised interest rate the most since 1994.

In recent days, the Japanese yen has hit a 24-year low against the dollar, while a broader measure of the US currency’s strength, the WSJ Dollar Index, has risen to a high. since 2002.

Hong Kong’s currency has been pegged to the US dollar since 1983 and trades within an acceptable range of HK$7.75 to HK$7.85 per US dollar. The city’s de facto central bank sells US dollars if the local currency is too weak or buys them if the Hong Kong dollar is too strong.

This week, the city’s monetary regulator sold $5 billion worth of US currency holdings, a series of statements showed.

The Hong Kong Monetary Authority’s dollar sales this year have surpassed total sales from 2019, the year before it had to sell reserves to boost the local currency’s value.

In local currency terms, the authority has sold more than 56.83 billion USD worth of HK$ this year, compared with 22.13 billion HK$ in 2019. It has spent more than 103 billion Hong Kong dollars during the previous weakening of the Hong Kong dollar that lasted from April to August 2018.

“Hong Kong’s monetary and financial markets continue to be stable, despite repeated US interest rate hikes and the foreign exchange market is operating in an orderly fashion, with ample market liquidity,” said CEO. HKMA, Eddie Yue said at Thursday’s press conference. this morning, after the money regulator raised its own policy rate to 2%.

Christopher Hui, the city’s financial services secretary, told lawmakers on Wednesday that Hong Kong has ample foreign currency reserves. They amounted to more than $460 billion at the end of May, he said, or about 1.7 times its monetary base.

The HKMA’s purchase of Hong Kong dollars will remove liquidity from the local financial system, increasing borrowing costs. Short-term interest rates in the city’s interbank lending market have lagged behind those in the US, making the Hong Kong dollar less attractive.

The U.S. dollar in 2021 sees its biggest increase in value since 2015. That’s good for many American consumers, but it could also hurt stocks and the U.S. economy. WSJ’s Dion Rabouin explains. Artwork: Sebastian Vega / WSJ

The one-month Hong Kong interbank rate, or Hibor, rose 0.06 percentage points on Thursday to 0.58%, its highest level since June 2020. London’s one-month interbank rate The equivalent for a U.S. dollar loan stood at 1.51%, according to FactSet.

Analysts say the HKMA has the tools in place to sustain rates, which they believe is unlikely to disrupt anytime soon.

“The pace of intervention has not yet exceeded the level we saw in 2018,” said Ju Wang, head of Mainland China foreign exchange and rate strategy at BNP Paribas.

While removing liquidity from Hong Kong’s financial system is boosting Hibor, the rate remains in line with the US Libor, suggesting that the Hong Kong banking system is running “a lot, a lot” of money, Ms. Wang said.

Write letter for Dave Sebastian at [email protected]

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