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Hong Kong’s de facto central bank has intervened in currency markets to defend the city’s currency peg in a move that threatens one of the world’s most attractive carry trades.
The Hong Kong Monetary Authority said on Thursday that it intervened in foreign exchange markets after the Hong Kong dollar weakened past HK$7.85 per US dollar, the weak end of its band.
The HKMA used HK$9.4bn ($1.2bn) of its reserves to buy Hong Kong dollars on the open market, which will drain liquidity out of the banking system. The move is set to push up interbank lending rates, which have hovered near zero since early May.
This is the second intervention in as many months. In early May, the Hong Kong dollar appreciated, forcing the HKMA to sell Hong Kong dollars on the open market and flooding the city’s banking system with liquidity that pushed down interbank lending rates.
This is a developing story
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