The Hong Kong dollar fell late on Thursday amid arbitrage buying of the US currency. The domestic currency was trading at 7.8206/08 to the US dollar, weaker than 7.8191/93 in late Asia trade on Wednesday.
"The USD/HKD spent most of the day within a tight range before some commercial buying for the US dollar in late afternoon, though the amounts were not huge," said a dealer at a local bank.
Another trader attributed the decline to interest rate arbitrage. "Given the interest rate differential with the United States, I would expect the Hong Kong dollar to stick to its recent range of 7.8150 and 7.8230," the trader said.
Since Hong Kong interbank rates are lower than the US rates, arbitrage traders can earn an interest rate spread if they sell Hong Kong dollars for the US currency.
The Federal Reserve held the benchmark federal funds rate target unchanged at 5.25 percent as expected on Wednesday and said its main concern was inflation despite recent signs of economic weakness.
Investors took the Fed's statement as an indication the central bank would keep interest rate on hold for a while. Hong Kong interest rates tend to track the US cycle because its currency is pegged to the US dollar.