The Hong Kong dollar recouped the previous day's losses on Friday amid a broad-based decline in the US dollar after the Federal Reserve signalled that its tightening campaign was nearing an end.
The domestic currency had recovered to 7.7664 against the US dollar earlier in the day before pulling back to 7.7672/75, but still firmer than Thursday's close at 7.7681/83.
"There was a sell-off in the Hong Kong dollar forwards on weak (US) dollar sentiment as well as the Fed's statement being less hawkish than the market had anticipated," said a dealer at a European bank. He added that some investors had expected the Fed to raise rates by as much as 50 basis points on Thursday.
The US central bank raised its benchmark federal funds rate by a quarter percentage point to 5.25 percent on Thursday, but said slowing economic growth should help limit inflation. Investors interpreted the Fed's policy statement as a signal that the central bank might pause after its latest interest rate increase.
The discount on one-year forwards was trading at 535/525 pips after hitting a session low of 540 pips, compared with 525/505 pips late on Thursday.
Hong Kong interbank rates were mostly softer and moved in tandem with the Hong Kong dollar forwards, except for the overnight rate.
One trader said the overnight liquidity was slightly tighter due to demand for funds on month-end and half-year term end. The overnight interbank rate was quoted at 3.80/3.90 percent, compared with Thursday's close at 3.50/3.60 percent.