Hong Kong dollar hits fresh 33-year low of 7.8467 vs USD
|- HKD drops after Fed rate hike.
- The widening three-month interbank lending spread could be hurting the HKD.
- Hong Kong's central bank is stuck between a rock and a hard place.
The Hong Kong dollar (HKD) fell to a fresh 33-year low of 7.8467 against the greenback.
The currency has dropped from 7.8149 to 7.8467 in the last three months. largely due to reduced borrowing costs and rising Hong Kong and US benchmark three-month interbank lending rate. Currently, the spread stands at 1.17 percentage points – the widest since the last recession, according to Reuters data.
The Hong Kong central bank has raised interest rates by 25 basis points today, however, the move will likely do little to stabilize the currency as the Fed is expected to deliver five more rate hikes by end 2019. So, in order to maintain the currency peg, the Hong Kong central bank may have to follow suit - a move that might endanger growth.
Meanwhile, if the HKD risks becoming a carry currency if the Hong Kong central bank stays put. Thus, the central bank is stuck between a rock and a hard place.
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