The Hong Kong dollar has once again come under pressure, with the Monetary Authority forced to step in and defend it. Despite criticism of the peg to the US dollar, the city’s long-standing commitment to maintaining it and its special significance make it a reliable bet.
The Hong Kong Monetary Authority stepped into the financial markets on Thursday for the first time in 18 months to support the local currency, as US interest rate rises has led to carry-trade activities and capital outflows that weakened the Hong Kong dollar to the bottom of its trading range against the US dollar.
As inflation rises to multi-decade highs, some central banks are once again raising interest rates aggressively, suggesting that the carry trade could come back from the dead in the coming months.
A carry trade is a trading strategy that involves borrowing a low-yield currency and investing in a high-yielding asset to exploit the interest rate differential.