The Hong Kong dollar strengthened against the US dollar on Friday on the back of a continued funds flow into the territory for IPOs and also driven by arbitrage trades, dealers said.
The local currency was trading at 7.7549/51 per US dollar, firmer than 7.7557/58 in late Asian trade on Thursday. It rose to a near 23-month high of 7.7547 earlier in the day.
"There have been some arbitrage plays, given that most Hong Kong interbank rates are higher than their US counterparts," said a dealer from a European bank.
HK interbank rates have risen in recent weeks amid demand for funds by banks in preparation for large deposit withdrawals from their customers ahead a spate of IPOs, including the highly-anticipated listing of China Construction Bank at the end of the month and the Link REIT planned for November.
Traders said interbank rates were also under pressure after recent comments from Federal Reserve officials expressing concern over US inflation, supporting expectations that the US central banks will stick to its tightening campaign.
The one- to three-month local interbank rates were trading about 36 to 19 basis points over US dollar Libor on Friday.
The one-month Hong Kong interbank rate was quoted at 4.25/4.30 percent late on Friday, up 47 basis points since September 22.
Hong Kong dollar forward rates rose across the board with some buying interest after the London market opened, dealers said.
Three-month forwards were trading at a premium of 35/40 pips, compared with Thursday's close of 30/35 pips. The discount on one-year forwards narrowed to 70/50 pips from 80/60 pips.