The easing of the Hong Kong dollar is a normal phenomenon when interest rate differentials widen between the local currency and the US dollar, while the weak forward rates do not mean the market is betting on a change in the local currency's peg to the greenback, the city's central bank said on Wednesday.
The Hong Kong dollar posted its biggest fall in 12 years last week as volatility, capital outflows and spiralling offshore yuan interest rates spilled into Hong Kong's markets. It regained some ground and traded at 7.7892 per dollar on Wednesday. "Even if the exchange rate touches the weak-side convertibility undertaking rate and funds flow out of the Hong Kong dollar, this is an inevitable process for the normalisation of the Hong Kong dollar interest rates," Howard Lee, an executive director at the Hong Kong Monetary Authority said in an article.