The Hong Kong dollar edged lower on Tuesday as some players continued to cover short dollar positions after the Hong Kong Monetary Authority (HKMA) intervened on Monday to stem the local currency's rise against the greenback. The local currency was trading at 7.7760/62 per US dollar easier than 7.7736/37 in late Asian trade on Monday.
Meanwhile, the discount on one-year forwards narrowed to 1,375/1,355 pips from Monday's close of 1,410/1,380 pips.
One dealer from a local bank said the greenback rebounded and a narrowing discount on yuan non-deliverable forwards had added pressure on the Hong Kong dollar.
The dollar edged up from a record low against the euro on Tuesday after comments from European Central Bank President Jean-Claude Trichet, who said the euro's recent rise was "brutal" and unwelcome.
The dollar also gained versus the Japanese currency to 105.57/60 yen versus 105.48 in late US trade.
"There was some technical adjustment before the Federal Reserve's meeting," another trader at a local bank said.
The US Federal Reserve is holding its policy-setting meeting on Wednesday. Dealers said the market has already priced in a 25 basis points rise in rates.
Hong Kong tends to track US rate moves because of the territory's currency peg to the US dollar. But Hong Kong banks are unlikely to follow the Fed's lead this time due to a banking system awash with funds.
The aggregate balance, the sum of balances on clearing accounts maintained by banks with the HKMA, will rise to HK$14.118 billion on Wednesday.
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