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Hong Kong sells US$1.5 billion in three days to defend currency peg as traders seeking higher US yields spark capital outflows
- The authority has spent a total of HK$11.697 billion (US$1.49 billion) in four interventions in the last three days
- The Hong Kong dollar is likely to remain weak, forcing the HKMA to continue to intervene in the currency market in the coming months, say analysts
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Hong Kong’s de facto central bank stepped into the currency market again on Saturday morning as it sought to defend the local dollar against the weakening effects of capital outflow.
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It was the fourth intervention in three days by the Hong Kong Monetary Authority (HKMA), bringing its total support for the currency to US$1.49 billion. The local dollar had fallen to its weakest level in more than three years.
The HKMA bought HK$3.164 billion (US$403 million) on Saturday morning to bolster the exchange rate and return the currency to its trading band, after it briefly fell to HK$7.8500 per US dollar. The band, in place since 2005, allows the Hong Kong dollar to fluctuate between HK$7.7500 and HK$7.8500 against the American currency.
The authority has bought a total of HK$11.697 billion and sold a combined US$1.49 billion in the four interventions, the first such action it has taken in 18 months.
“The weakening Hong Kong dollar followed capital outflow as the rising US interest rates recently led traders to sell the Hong Kong dollar and buy the US dollar to enjoy a higher interest rate,” said Robert Lee Wai-wang, the lawmaker for the financial services sector and chief executive of Grand Capital Holdings.
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“The stock market downturn and the slump in initial public offerings in the first quarter also meant fewer overseas investors injecting capital into Hong Kong. The weak Hong Kong dollar is likely to continue, which will force the authority to continue to intervene in the currency market in the coming months.”
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