The Hong Kong dollar pulled away from offshore highs on Tuesday as arbitrage traders took advantage of an interest rate differential with the United States.
The currency was trading at 7.7773/75 against the US dollar, retreating from a 10-week high of 7.7735 hit in offshore trade the previous day, but still stronger than Friday's local close of 7.7821/23. Hong Kong financial markets were closed on Monday for a public holiday.
The Hong Kong dollar is linked to the US dollar and is allowed to trade between 7.75 and 7.85 to the US dollar. Local interbank rates fell across the board on Tuesday as excess funds that had been tied up by the Industrial & Commercial Bank of China's initial public offering returned to the banking system, dealers said.
The overnight rate fell to 3.50/3.70 percent in late afternoon from a near five-month high of 5.3 percent on Friday. The one- and two-week rates eased to 3.90/3.95 percent. The one-month rate fell five basis points to 3.90/3.95 percent from Friday's close.
The three-month Hong Kong interbank rate was trading at around 3.98/4.03 percent. The gap between the three-month US interbank rate and the Hong Kong rate was 134 basis points.