Hong Kong's central financial institution FX intervened but once more to assist the HKD

Hong Kong Financial Authority purchased just below 6.4bn HKD to prop up the forex.

The HKD has been working alongside weaker finish of its buying and selling band (ie prime finish of the USD/HKD band).

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I’ve posted on this earlier than, ICYMI:

Since 1983, the HKD has been pegged to the U.S. greenback beneath a Linked Alternate Price System (LERS), making certain alternate fee stability and selling investor confidence. The peg ties the HKD at roughly 7.80 per U.S. greenback, with a permitted buying and selling vary of seven.75 to 7.85.

The HKMA makes use of an automated adjustment mechanism to maintain the HKD inside its allowed band:

• Foreign money Board System: The HKMA operates a forex board association, making certain each HKD issued is backed by U.S. greenback reserves at a hard and fast fee. This implies modifications within the financial base (the sum of forex in circulation and financial institution reserves) are immediately tied to overseas alternate inflows or outflows.
• Intervention Mechanism:
  • When the HKD approaches the robust facet of seven.75, the HKMA sells HKD and buys U.S. , injecting liquidity into the monetary system.
  • When the HKD nears the weak facet of seven.85, the HKMA does the reverse—shopping for HKD and promoting U.S. , withdrawing liquidity.This ensures alternate fee stability inside the goal band.

This text was written by Aaron Cutchburt at investinglive.com.