Hong Kong steps up defence of currency's US dollar peg as fixed range tested again
Hong Kong's currency peg has been strained by volatility in the US dollar.
- Hong Kong's de facto central bank ramped up purchases of the city's currency as it sought to defend a peg that has been strained by volatility in the US dollar.
The Hong Kong Monetary Authority (HKMA) said on July 2 that it bought HK$20.02 billion (S$3.25 billion) of the city's currency after indicative pricing suggested the local dollar touched the weak end of its permitted trading range in late New York trading overnight.
That is more than double the HK$9.42 billion it purchased last week.
The Hong Kong dollar was little changed at 7.8497 on July 2, after the intervention.
The Hong Kong dollar has been through a roller-coaster ride in recent months, swinging between both ends of its trading range. And for the first time since the current band came into effect in 2005, the authorities had to defend the peg on both sides within just one year.
The wild swings have also intensified debate about the sustainability of the currency's peg, even though there are no signs that a change is imminent.
Market watchers had talked about the possibility of widening the narrow peg, linking the Hong Kong dollar to China's renminbi or even free-float the currency altogether.
Top stories
Swipe. Select. Stay informed.
World US Senate approves divisive Trump spending Bill
World Trump escalates feud with Musk, threatens Tesla and SpaceX support
Business Cathay Cineplexes gets demand for $3.4 million in arrears from Jem landlord
Singapore 3,800 private candidates in Singapore to take O- and A-level exams in 2025
Multimedia Right on track: Meet the new JB-Singapore RTS Link train
Business Binance to keep hundreds of staff in Singapore despite crackdown, sources say
Singapore 'He fought till the end': Man who survived acid attack as a baby dies of cancer at 26
World Trump urges Hamas to accept 'final proposal' for 60-day Gaza ceasefire
In May, a slump in the US dollar spurred a rush for Hong Kong's currency, prompting the HKMA to flood the financial system with cash in an effort to cool the rally that threatened the 7.75-per-US dollar strong end of the band.
The operation, however, triggered a sharp reversal of the city's dollar, and it plunged all the way to 7.85, the opposite end of the trading range.
Still, even after latest round of intervention this week, Hong Kong's aggregate balance – a component of its monetary base – will only fall to HK$144.2 billion.
That means the supply of cash will remain abundant and local funding costs are still low.
Therefore, the so-called carry trade, which involves traders borrowing the Hong Kong dollar cheaply and selling it against higher yielding greenback, is still lucrative.
So the local currency can still hit the weak end of the band soon again, analysts say.
'It may take more time for liquidity conditions to normalize this time around, and intervention will go on as long as flush liquidity condition continues,' said InTouch Capital Markets strategist Andy Ji.
Now, all eyes are on Hong Kong's interbank rates, known as Hibor, which has remained low despite the HKMA's liquidity drainage.
The spread between one-month Hibor and its US counterpart stood near a record high earlier this week. BLOOMBERG
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Straits Times
an hour ago
- Straits Times
60 S'pore firms to get AI boost from Tata Consultancy as it launches a new innovation centre here
Sign up now: Get ST's newsletters delivered to your inbox (From left) TCS Pace global head Leena Walavalkar, High Commissioner of India Shilpak Ambule, TCS Ppresident for growth markets Girish Ramachandran, Minister of State for Trade and Industry Alvin Tan, TCS chief technology officer Harrick Vin, TCS Singapore country head Punit Agarwal, TCS chief technology officer Michele Lemmens at the launch of the new facility on July 3. SINGAPORE - Up to 60 local SMEs and start-ups are getting an AI boost from India's largest IT services provider Tata Consultancy Services (TCS) with its launch of a high-powered innovation centre in Singapore. The new facility, located within TCS Asia Pacific's office at Changi Business Park, will allow the firm's customers and partners – including up to 50 small and medium-sized enterprises and 10 start-ups in the next 12 months – to work with its experts to co-develop, prototype and scale AI solutions for real-world business challenges. TCS also plans to hire up to 50 fresh graduates from local universities in roles such as data science and cyber security to support the centre's operations. The company has 6,600 employees in Singapore. TCS declined to disclose the facility's cost or size, but said it plans to expand it in the first half of 2026. Mr Punit Agarwal , TCS Singapore country head, told The Straits Times on July 3 that SMEs here typically do not have access to top consulting talent for tech, but the new centre will be able to help bridge that gap. 'SMEs may not be as tech-savvy as larger corporations, but our consultants can guide them in understanding their data, learning how to use AI, and assessing their existing tech stack to identify what needs to be modernised,' he said. Mr Agarwal also noted that the centre will serve as a platform for fintech firms and start-ups to showcase their products and join TCS' Co-Innovation Network – a global ecosystem that connects emerging tech companies with TCS' enterprise customers worldwide. 'The centre will bring together our deep domain and contextual knowledge of customer business and cutting-edge technologies from Google, Nvidia and other technology partners to deliver impactful outcomes for business in Singapore,' he said. At the launch ceremony for the new innovation centre on July 3 , Minister of State for Trade and Industry Alvin Tan said Singapore will continue to deploy and develop digital AI solutions with digital and local players. He noted that TCS's new innovation centre will play a similar role to the $150 million Enterprise Compute Initiative (ECI) announced in the 2025 Budget, which helps Singapore-based companies gain access to cloud resources, AI tools and consultancy services. 'It will partner with local and global corporates to advance their digital transformation – by connecting businesses including start-up s, academia, and government agencies, the centre will drive cross-sector innovation and collaboration,' he said. Headquartered in Mumbai, TCS established its operations in Singapore in 1985. The firm, which specialises in IT services, consulting and business solutions, has a presence in 55 countries worldwide.
Straits Times
an hour ago
- Straits Times
China vows retaliation if it's hurt by US-Vietnam trade deal
Sign up now: Get ST's newsletters delivered to your inbox Goods rerouted through Vietnam would be subject to 40 per cent tariff under the trade deal with the US. China said it was examining a trade deal that the US and Vietnam clinched and would retaliate if its interests were hurt – a sign that tensions between Beijing and Washington risk worsening as more of the pacts are finalised. 'We are happy to see all parties resolve trade conflicts with the US through equal negotiations but firmly oppose any party striking a deal at the expense of China's interests,' Ms He Yongqian, a spokeswoman for the Ministry of Commerce, said at a press briefing in Beijing on July 3. 'If such a situation arises, China will firmly strike back to protect its own legitimate rights and interests,' she added, without elaborating on what those steps would entail. The comments are a reiteration of China's line since the US started working on a slew of deals with trade partners around the world that are aimed at trimming America's trade deficit. They come after President Donald Trump said he had reached an agreement with Vietnam that places a 40 per cent levy on any goods deemed to be transshipped through the country. Some companies have been moving products made in China through Vietnam to skirt US tariffs, activity the Trump administration wants to curtail. When asked about the status of a probe into European Union brandy sold in China, Ms He said the ministry would make a final decision in the coming days. BLOOMBERG Top stories Swipe. Select. Stay informed. Singapore $500 in Child LifeSG credits, Edusave, Post-Sec Education Account top-ups to be disbursed in July Singapore PAP questions Pritam's interview with Malaysian podcast, says politics should stop at water's edge World Liverpool's Portuguese forward Diogo Jota dies in car crash in Spain Sport Liverpool star Diogo Jota dead at 28: What you need to know about the Portuguese footballer Singapore Man to be charged after he allegedly damaged PAP campaign materials on GE2025 Polling Day Singapore Scoot launches flights to Da Nang, Kota Bharu and Nha Trang; boosts frequency to other destinations Singapore Electrician who bit off part of coworker's ear during fight gets 6 months' jail Asia 4 dead, 30 missing after ferry sinks on way to Indonesia's Bali
Straits Times
an hour ago
- Straits Times
After Prada's ‘sandal scandal', Indian brands tap heritage pride to boost sales
Sign up now: Get ST's newsletters delivered to your inbox 'Kolhapuri' sandals have garnered global attention after Prada sparked a controversy by showcasing similar designs in Milan. MUMBAI/MILAN - Indian footwear sellers and artisans are tapping into nationalist pride stoked by the Prada 'sandal scandal' in a bid to boost sales of ethnic slippers with history dating back to the 12th century, raising hopes of reviving a struggling craft. Sales are surging over the past week for the 'Kolhapuri' sandals that have garnered global attention after Prada sparked a controversy by showcasing similar designs in Milan, without initially crediting the footwear's origins. After viral photos from a fashion show drew criticism from Indian artisans who make the sandals - named after a historic city in Maharashtra state - Prada was forced to acknowledge that its new open-toe footwear was inspired by ancient Indian designs. 'Prada 0: Kolhapur 1,' said an Instagram post by e-commerce website Shopkop, whose founder Rahul Parasu Kamble's open letter to Prada pointing out the footwear is 'soaked in tradition' was reshared 36,000 times on social media. 'I saw the controversy as a way to promote Kolhapuri,' said Kamble, 33, who has seen sales of sandals he sources from local artisans touch 50,000 rupees (S$745) in three days, five times the average. A girl tries 'Kolhapuri' sandals, an Indian ethnic footwear, at a store in New Delhi. PHOTO: REUTERS Prada has said it will arrange follow-up meetings with artisans. In a statement to Reuters on July 1, it added the Italian group intends to make the sandals in India in collaboration with local manufacturers, if it commercialises them. India's luxury market is small but growing, with the rich splurging on Lamborghini cars and pricey watches. Prada does not have a single retail store in India and its products are usually reserved for the super rich - its men's leather sandals start retailing at US$844 (S$1,073), while Kolhapuris can be priced as low as US$12. But linking of the Prada name to the Kolhapuri sandals, which are made by around 7,000 artisans, is providing a business opportunity for some. Handmade in small factories, Kolhapuri sandals, or chappals as they are called in Hindi, are often paired with Indian attire. Similar designs are sold in big outlets of Bata India and Metro Brands, and also on Amazon and Walmart's Flipkart. 'Kolhapuri' sandals, an Indian ethnic footwear, are on display at a store in New Delhi. PHOTO: REUTERS In 2021, India's government said the sandals could achieve US$1 billion a year in exports. Though latest estimates are not available, artisans say the business has struggled as consumers increasingly opt for more fashionable, upmarket footwear. Still, the Prada controversy is breathing new life into a craft that Lalit Gandhi, president of Maharashtra's main industry lobby group, says is 'a dying art'. Gandhi said he is in talks with Prada to develop a co-branded, limited-edition sandal. Kolhapur craftsmen Ashok Doiphode, 50, is pinning hopes on a Prada boost. He hand-stitches sandals for nine hours daily but can sell a pair for just 400 rupees. 'If big companies like Prada come, craftsman like me can get a good price.' REUTERS
