HONG KONG (Reuters) – Hong Kong’s central bank intervened in the market for the first time since 2015 after its currency hit the weaker end of its trading range, nudging up a key lending rate that could push borrowing costs higher.
“I reiterate that the HKMA will buy Hong Kong dollars (HKD) and sell U.S. dollars at 7.85 level to ensure that the HKD exchange rate will not weaken beyond 7.8500,” Norman Chan, chief executive of the Hong Kong Monetary Authority (HKMA), said in a statement.
US - Trading - Hours - HKMA - Currency
In U.S. trading hours, the HKMA stepped into the currency market and bought HK$3.038 billion ($387.01 million) in Hong Kong dollars on Friday, as the local currency hit the weaker end of its trading range.
Earlier in the session, the central bank bought HK$2.442 billion ($311 million) of Hong Kong dollars. On Thursday, it bought HK$816 million from the currency market.
Time - Trading - Band - Convertibility - Undertaking
This was the first time since the current trading band was introduced in 2005 that the weak-side convertibility undertaking (CU) at 7.85 to keep the Hong Kong dollar closely pegged to the U.S. currency had been triggered.
The HKMA said the undertaking was triggered in London trading hours.
Hong - Kong - Dollar - End - Bank
The Hong Kong dollar touched the lower end of the central bank’s trading band target as the interest rate gap between the greenback and the local currency widened.
As the former British colony pegs its currency to the dollar, its money market rates should mirror those of its U.S. counterpart, but the gap has now widened to more than 117 basis points since the Federal Reserve started raising interest rates from ultra-low levels adopted during the 2008 financial crisis. Hong Kong’s markets have remained flush with excess cash, keeping a lid on Hong Kong dollar interest rates.
Market - Participants - Bout - Weakness - Threat
Most market participants do not see the current bout of weakness as a threat to the...
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