Hong Kong Monetary Authority bought just under 6.4bn HKD to prop up the currency.
The HKD has been running along weaker end of its trading band (ie top end of the USD/HKD band).
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I’ve posted on this before, ICYMI:
Since 1983, the HKD has been pegged to the U.S. dollar under a Linked Exchange Rate System (LERS), ensuring exchange rate stability and promoting investor confidence. The peg ties the HKD at approximately 7.80 per U.S. dollar, with a permitted trading range of 7.75 to 7.85.
The HKMA uses an automatic adjustment mechanism to keep the HKD within its allowed band:
- Currency Board System: The HKMA operates a currency board arrangement, ensuring every HKD issued is backed by U.S. dollar reserves at a fixed rate. This means changes in the monetary base (the sum of currency in circulation and bank reserves) are directly tied to foreign exchange inflows or outflows.
- Intervention Mechanism:
- When the HKD approaches the strong side of 7.75, the HKMA sells HKD and buys U.S. dollars, injecting liquidity into the financial system.
- When the HKD nears the weak side of 7.85, the HKMA does the reverse—buying HKD and selling U.S. dollars, withdrawing liquidity.This ensures exchange rate stability within the target band.
This article was written by Eamonn Sheridan at investinglive.com.