26th June 2025 – (Hong Kong) The Hong Kong Monetary Authority (HKMA), acting as the de facto central bank, undertook measures on Thursday to bolster the local dollar, aiming to uphold the city’s currency peg to the U.S. dollar. In response to the local currency touching the weaker end of the 7.75-7.85 per greenback trading band, the HKMA purchased HK$9.42 billion ($1.2 billion) of the Hong Kong dollar against the US dollar.
This intervention not only realigned the currency within its permissible trading range but also increased the cost of bearish speculations. By withdrawing liquidity from the financial system and elevating borrowing expenses, the move aims to deter bets against the local currency.
The HKMA’s latest action marks the first time it has intervened in this direction since May 2023, signalling a strategic response to recent fluctuations.
The intervention is expected to curtail the city’s aggregate balance, a critical component of its monetary base and an indicator of interbank liquidity, reducing it to HK$164 billion, as reported by the HKMA. Hong Kong’s foreign currency reserves stood at $431 billion as of the latest data available for May.
The recent oscillations in the Hong Kong dollar have reignited discussions on the sustainability of the currency peg. Last month, the HKMA injected a substantial amount of liquidity into the financial system to counter a swift appreciation of the currency amidst a broader US dollar depreciation. However, this move inadvertently led to a decrease in borrowing costs, widening the gap between local interest rates and those in the US to a historical level.
The discrepancy in funding costs between the Hong Kong dollar and the US dollar has created an environment where traders opt to borrow the city’s currency at lower rates and sell it against the higher-yielding US dollar, capitalising on the interest-rate differential. This setup has positioned the carry trade involving the Hong Kong dollar as one of the most lucrative globally in recent weeks.
As trading commenced in Asia on Thursday, the Hong Kong dollar saw a slight uptick to 7.8492 per US dollar. While the currency experienced its most substantial monthly decline since 1983 in May, concerns over the sustainability of the long-standing peg to the US dollar persist, despite no immediate threats to its stability.
Chief Executive John Lee affirmed Hong Kong’s commitment to maintaining the currency peg to the US dollar, citing it as a fundamental pillar of success. This declaration followed market speculation regarding potential alternatives to the dollar peg earlier in June.
