The Hong Kong dollar eased slightly from the top of its trading band against the US dollar late on Wednesday, while interbank rates were mostly lower after massive fund injections by the city's central bank in the previous session to defend the currency peg amid capital inflows. The local currency hit a session low of 7.7505 in late afternoon, just a whisker from its upper limit at 7.7500 against the US dollar.
One dealer at a European bank said the spot rate was likely to consolidate in a narrow range of 7.7500 to 7.7510 in coming days, with attention focusing on the stock market's performance. The Hong Kong currency is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85. Under the currency peg, the HKMA is usually obliged to intervene when the Hong Kong dollar hits 7.75 or 7.85 to keep the band intact.
Local interbank rates fell and the discount on Hong Kong dollar forwards widened on Wednesday due to abundant liquidity in the banking system, dealers said. Three-month Hibor was fixed at 0.62857 percent on Wednesday morning, its lowest level since early-January 2005 and down from Tuesday's 0.66321 percent. Dealers said the Hong Kong money market showed little immediate reaction to the news. They said reaction would only increase if there was a community outbreak.
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