US Pres. Trump aides weigh proposals to undermine Hong Kong’s dollar peg – Bloomberg

US Secretary of State Mike Pompeo joins some of the top advisers in the Trump administration to consider using the Hong Kong dollar’s peg with the US currency. The move aims to punish China for recent moves to chip away at the former British colony’s political freedoms, per the Bloomberg.

Key quotes

The idea of striking against the Hong Kong dollar peg -- perhaps by limiting the ability of Hong Kong banks to buy U.S. dollars -- has been raised as part of broader discussions among advisers to Secretary of State Michael Pompeo and hasn’t been elevated to the senior levels of the White House, suggesting that it hasn’t gained serious traction yet, according to people who discussed the matter on condition of anonymity.

The proposal faces strong push back from others in the administration who worry such a move would only hurt Hong Kong banks and the U.S., not China, they said.

Another person cautioned that the idea of attacking the dollar peg is lower on the list of possible options now under discussion. Those ideas include canceling a U.S.-Hong Kong extradition treaty and ending cooperation with Hong Kong’s police, the person said.

Hong Kong has pegged its currency to the U.S. dollar since 1983, allowing it to fluctuate within a fairly strict band that has generally centered around 7.8 per U.S. dollar.

The very idea that undermining the peg has even been raised offers some insight into the range of discussions now underway for punishing China. The idea has primarily been discussed at the State Department, where Pompeo has emerged as the administration’s loudest critic of Beijing’s recent decision to impose a new national security law on Hong Kong.

Market reaction

In addition to weighing on the market sentiment, the news also adversely affects the USD/HKD pair. As a result, the S&P 500 Futures recede the day-start consolidation of Tuesday’s losses whereas USD/HKD seesaws around 7.75.