The Hong Kong dollar fell against the US dollar on Wednesday as arbitrage traders took advantage of an interest rate differential with the United States. The Hong Kong dollar was trading at 7.7785/86 to the US dollar in late trade, down from 7.7775/77 late on Tuesday but up slightly from 7.7786/88 early on Wednesday morning.
Under the territory's fixed exchange rate link, the Hong Kong dollar can trade between 7.75 and 7.85 to the US dollar. Expectations of another US interest rate rise next month rose after US consumer confidence and home sales data beat expectations, underpinning the US dollar on Wednesday.
But currency and money market traders in Hong Kong were more cautious. Many still see a chance the Fed will leave rates unchanged at its August 8 policy meeting. Hong Kong tends to track US rate moves because of its currency peg to the US dollar, although local banks have ignored the last two US rate increases amid ample market liquidity and keen competition for business. Interbank rates were mixed. The overnight rate was quoted at 3.00/3.25 percent in late trade, down from 3.50/3.70 percent late on Tuesday.