Latest news with #HongKongDollar
Yahoo
a day ago
- Business
- Yahoo
When pegs fly: Trump-induced turbulence hits Hong Kong dollar, interest rates
By Rae Wee and Jiaxing Li SINGAPORE/HONG KONG (Reuters) -U.S. President Donald Trump's erratic policies are rattling a currency peg that has withstood the test of time and is seen as an anchor for China and Asia. The Hong Kong dollar has whipsawed from one end of its narrow trading band to the other versus the greenback in just a month. While the latest volatility is not seen as a threat to the four-decade-old peg, the it has had a dramatic impact on interest rates, providing a challenging environment for businesses and investors in the financial hub. The stress on one of the world's best-known currency pegs underscores how volatility in the U.S. dollar under Trump is disrupting even the most stable corners of the market. Interest rates in Hong Kong have tended to move in lockstep with the United States, keeping the Hong Kong dollar - which trades between 7.75 and 7.85 per U.S. dollar - relatively stable. But they have decoupled over the past month as global investors cooled on U.S. assets and fretted about Washington's growing debt pile, while massive capital entered Hong Kong as foreigners flocked to blockbuster share offerings. Chinese investors have also ploughed record amounts of money into Hong Kong-listed stocks. "The pace and speed of inflow was quite surprising," said Raymond Yeung, ANZ's chief economist for Greater China. The volatility forced the Hong Kong Monetary Authority (HKMA), the city's de-facto central bank, to intervene in the foreign exchange market four times in May as the Hong Kong dollar bumped up against the strong end of its trading band. That caused borrowing costs in Hong Kong to plunge to record lows, tempting speculators to short-sell the currency and drive it swiftly to 7.85, the weak end of the band. As Hong Kong rates fell, the gap between U.S. three-month rates and the benchmark in Hong Kong hit a record high last week, based on LSEG data stretching back to 2020. Spreads across other tenors similarly widened. Analysts say it is normal to see an occasional deviation in rates between the Hong Kong dollar and U.S. dollar, but the abrupt moves seen in recent weeks are worrisome for businesses and investors - especially given disruptions to global trade and other uncertainty. "If the gap closes abruptly, then firms and households and the financial system in Hong Kong might suffer from a large interest rate shock, which is not good for financial stability," ANZ's Yeung said. Hong Kong officials have sought to reassure markets that the peg is here to stay, and that despite the increased volatility, there are some benefits to the current low level of rates. The city's leader John Lee told SCMP in an interview published on Monday that the city will maintain its currency's peg to the dollar. HKMA chief Eddie Yue noted the impact of lower interest rates on individuals and corporates would vary, depending on their relative positions in bank deposits and borrowings. "However, looking at it through a macroeconomic lens, lower interest rates should be beneficial to the current economic environment of Hong Kong," he said in a blog post. Lower mortgage rates seem to have helped the economy's flagging property market, with home prices edging up in April to end four months of decline. The government too has used the opportunity to access cheaper borrowing for longer. It issued 30-year bonds, its longest tenor debt, for the first time last month. "It's a good time for Hong Kong to lock in the low funding," said Lei Zhu, head of Asian fixed income at Fidelity International. Sign in to access your portfolio
Yahoo
a day ago
- Business
- Yahoo
Hong Kong has all but abandoned the dollar peg
Interest rates in Hong Kong have been eerily low, raising the question of whether the city's dollar peg is now in name only. Interest rates in Hong Kong have been eerily low, raising the question of whether the city's dollar peg is now in name only. Hong Kong surrendered its monetary autonomy decades ago, thanks to a unique mechanism that restricts its currency fluctuation to a narrow band of 7.75 and 7.85 per dollar. That means the city's borrowing costs move in lockstep with those in the US, which are dictated by the Federal Reserve's rate policies. Lately, though, currency traders have been staring at an anomaly. The one-month Hong Kong interbank offered rate, or Hibor, has collapsed since early May. The gap with the US secured overnight financing rate, or SOFR, is at an unprecedented level of more than three percentage points. Investors are now asking what caused this divergence and whether Hibor will stay lower for longer. The first part of the story is well understood. Last month, the Hong Kong Monetary Authority purchased the greenback amid a global dollar rout to prevent its currency from strengthening beyond 7.75. HKMA's balance sheet ballooned while a flood of new local money pushed down Hibor. But such glaring bifurcation from SOFR should only be temporary. When local funding costs are significantly lower, traders can borrow Hong Kong dollars and sell them against the higher-yielding US counterpart. This, in turn, will lift the city's currency and rates over time. The fact that this rate gap has not narrowed shows there's little appetite to earn dollar carry trades. Wall Street banks are reinforcing their calls that the dollar will weaken further. In addition, there's talk of an Asian Financial Crisis in reverse, marked by a violent rally in local currencies such as the one Taiwan witnessed in early May. What if HKMA all of a sudden decides to move the currency peg to a stronger range? Gains from the carry trade would be instantly wiped out. Investors are right not to lose sight of the big picture. After all, Taiwan dollar's 8% melt-up last month proved painful for under-hedged insurers and exporters. On an economic level, this trend can be a huge boon for a financial hub that is trying to regain its footing. In recent years, businesses have complained about the dollar peg, saying that Fed rate hikes unnecessarily tightened the city's financial conditions and hamstrung its economic recovery. Hong Kong's anaemic residential real estate, for one, could see a rebound if the current trend continues. The prevailing new mortgage rate would be only 2.1%, versus 3.5% in early May. For a 30-year loan with a 70% loan-to-value ratio, monthly payments could be cut by about 15%, according to Bloomberg Intelligence. The value of underwater mortgages would fall as well. A persistent rate gap reveals two things: First, the 'Sell America' trade is real. Second, the city has practically moved on from a waning reserve currency, tearing itself from an interest rate trajectory mapped out by central bankers thousands of miles away. This peg is too archaic. See Also: Click here to stay updated with the Latest Business & Investment News in Singapore China's global income tax crackdown expands beyond ultra rich Hong Kong's 2025 growth outlook cut by AMRO on trade uncertainty Chinese listing spree sparks revival hopes in Hong Kong stocks Read more stories about where the money flows, and analysis of the biggest market stories from Singapore and around the World Get in-depth insights from our expert contributors, and dive into financial and economic trends Follow the market issue situation with our daily updates Or want more Lifestyle and Passion stories? Click hereError in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Reuters
a day ago
- Business
- Reuters
When pegs fly: Trump-induced turbulence hits Hong Kong dollar, interest rates
SINGAPORE/HONG KONG, June 9 (Reuters) - U.S. President Donald Trump's erratic policies are rattling a currency peg that has withstood the test of time and is seen as an anchor for China and Asia. The Hong Kong dollar has whipsawed from one end of its narrow trading band to the other versus the greenback in just a month. While the latest volatility is not seen as a threat to the four-decade-old peg, the it has had a dramatic impact on interest rates, providing a challenging environment for businesses and investors in the financial hub. The stress on one of the world's best-known currency pegs underscores how volatility in the U.S. dollar under Trump is disrupting even the most stable corners of the market. Interest rates in Hong Kong have tended to move in lockstep with the United States, keeping the Hong Kong dollar - which trades between 7.75 and 7.85 per U.S. dollar - relatively stable. But they have decoupled over the past month as global investors cooled on U.S. assets and fretted about Washington's growing debt pile, while massive capital entered Hong Kong as foreigners flocked to blockbuster share offerings. Chinese investors have also ploughed record amounts of money into Hong Kong-listed stocks. "The pace and speed of inflow was quite surprising," said Raymond Yeung, ANZ's chief economist for Greater China. The volatility forced the Hong Kong Monetary Authority (HKMA), the city's de-facto central bank, to intervene in the foreign exchange market four times in May as the Hong Kong dollar bumped up against the strong end of its trading band. That caused borrowing costs in Hong Kong to plunge to record lows, tempting speculators to short-sell the currency and drive it swiftly to 7.85, the weak end of the band. As Hong Kong rates fell, the gap between U.S. three-month rates and the benchmark in Hong Kong hit a record high last week, based on LSEG data stretching back to 2020. Spreads across other tenors similarly widened. Analysts say it is normal to see an occasional deviation in rates between the Hong Kong dollar and U.S. dollar, but the abrupt moves seen in recent weeks are worrisome for businesses and investors - especially given disruptions to global trade and other uncertainty. "If the gap closes abruptly, then firms and households and the financial system in Hong Kong might suffer from a large interest rate shock, which is not good for financial stability," ANZ's Yeung said. Hong Kong officials have sought to reassure markets that the peg is here to stay, and that despite the increased volatility, there are some benefits to the current low level of rates. The city's leader John Lee told SCMP in an interview published on Monday that the city will maintain its currency's peg to the dollar. HKMA chief Eddie Yue noted the impact of lower interest rates on individuals and corporates would vary, depending on their relative positions in bank deposits and borrowings. "However, looking at it through a macroeconomic lens, lower interest rates should be beneficial to the current economic environment of Hong Kong," he said in a blog post. Lower mortgage rates seem to have helped the economy's flagging property market, with home prices edging up in April to end four months of decline. The government too has used the opportunity to access cheaper borrowing for longer. It issued 30-year bonds, its longest tenor debt, for the first time last month. "It's a good time for Hong Kong to lock in the low funding," said Lei Zhu, head of Asian fixed income at Fidelity International.
Yahoo
a day ago
- Business
- Yahoo
When pegs fly: Trump-induced turbulence hits Hong Kong dollar, interest rates
By Rae Wee and Jiaxing Li SINGAPORE/HONG KONG (Reuters) -U.S. President Donald Trump's erratic policies are rattling a currency peg that has withstood the test of time and is seen as an anchor for China and Asia. The Hong Kong dollar has whipsawed from one end of its narrow trading band to the other versus the greenback in just a month. While the latest volatility is not seen as a threat to the four-decade-old peg, the it has had a dramatic impact on interest rates, providing a challenging environment for businesses and investors in the financial hub. The stress on one of the world's best-known currency pegs underscores how volatility in the U.S. dollar under Trump is disrupting even the most stable corners of the market. Interest rates in Hong Kong have tended to move in lockstep with the United States, keeping the Hong Kong dollar - which trades between 7.75 and 7.85 per U.S. dollar - relatively stable. But they have decoupled over the past month as global investors cooled on U.S. assets and fretted about Washington's growing debt pile, while massive capital entered Hong Kong as foreigners flocked to blockbuster share offerings. Chinese investors have also ploughed record amounts of money into Hong Kong-listed stocks. "The pace and speed of inflow was quite surprising," said Raymond Yeung, ANZ's chief economist for Greater China. The volatility forced the Hong Kong Monetary Authority (HKMA), the city's de-facto central bank, to intervene in the foreign exchange market four times in May as the Hong Kong dollar bumped up against the strong end of its trading band. That caused borrowing costs in Hong Kong to plunge to record lows, tempting speculators to short-sell the currency and drive it swiftly to 7.85, the weak end of the band. As Hong Kong rates fell, the gap between U.S. three-month rates and the benchmark in Hong Kong hit a record high last week, based on LSEG data stretching back to 2020. Spreads across other tenors similarly widened. Analysts say it is normal to see an occasional deviation in rates between the Hong Kong dollar and U.S. dollar, but the abrupt moves seen in recent weeks are worrisome for businesses and investors - especially given disruptions to global trade and other uncertainty. "If the gap closes abruptly, then firms and households and the financial system in Hong Kong might suffer from a large interest rate shock, which is not good for financial stability," ANZ's Yeung said. Hong Kong officials have sought to reassure markets that the peg is here to stay, and that despite the increased volatility, there are some benefits to the current low level of rates. The city's leader John Lee told SCMP in an interview published on Monday that the city will maintain its currency's peg to the dollar. HKMA chief Eddie Yue noted the impact of lower interest rates on individuals and corporates would vary, depending on their relative positions in bank deposits and borrowings. "However, looking at it through a macroeconomic lens, lower interest rates should be beneficial to the current economic environment of Hong Kong," he said in a blog post. Lower mortgage rates seem to have helped the economy's flagging property market, with home prices edging up in April to end four months of decline. The government too has used the opportunity to access cheaper borrowing for longer. It issued 30-year bonds, its longest tenor debt, for the first time last month. "It's a good time for Hong Kong to lock in the low funding," said Lei Zhu, head of Asian fixed income at Fidelity International.
Reuters
a day ago
- Business
- Reuters
Hong Kong's leader says to maintain US dollar peg, despite geopolitical tensions
June 9 (Reuters) - Hong Kong will maintain its currency peg to the U.S. dollar, the financial hub's leader said in an interview published on Monday, despite escalating geopolitical tensions and some calls to shift to a Chinese yuan peg. The Hong Kong dollar has experienced sharp volatility over the past two months, strengthening to hit the strong end of the trading band and prompting the city's de-facto central bank to forcefully step up intervention, before the currency softened to near the weaker limit in recent sessions. "Hong Kong's link with the U.S. dollar has proven to be one of the fundamental success factors," John Lee told the South China Morning Post, noting the peg had always come under pressure, especially in uncertain times. In order to defend the currency's peg to move within 7.75 and 7.85 per U.S. dollar range, the Hong Kong Monetary Authority injected HK$129.4 billion into the market to purchase $16.7 billion worth of U.S. dollars in multiple interventions last month. Some market watchers have called for switching Hong Kong's U.S. dollar peg to the yuan at a time when trade tensions between the world's two largest economies have created uncertainty. Lee said his administration would strengthen the city's role as the global offshore yuan hub, while continuing to defend the U.S. dollar peg. "We will do more (offshore yuan) product diversification, so that it will generate more trade," he told the newspaper, noting that about 80% of the offshore yuan payments were processed in Hong Kong.
