Hong Kong Dollar Hits One-Month Low Amid Carry-Trade Fears

The Hong Kong dollar has hit a one-month low as carry trades loom due to a widening interest-rate gap between Hong Kong and the United States. The currency fell to 7.8456 per U.S. dollar in afternoon trading, its weakest level in a month.

The Hong Kong Monetary Authority (HKMA) intervenes in the foreign exchange market when the currency reaches either side of the band to maintain the peg. HKMA Chief Executive Eddie Yue said the interest-rate differential between the Hong Kong dollar and U.S. dollar was likely to widen, potentially encouraging carry trades.

A global selloff in bonds and renewed inflation concerns have pushed U.S. Treasury yields higher and supported the U.S. dollar. Meanwhile, borrowing costs in Hong Kong have remained relatively subdued amid weak credit demand, increasing the appeal of trades that use Hong Kong dollars as a funding currency.