Traders sceptical on proposal to undermine Hong Kong’s currency peg

Published On: July 8, 2020Categories: Latest News1.5 min read

Hang Seng Index futures swung between gains and losses as stock investors digested the news, moving largely in line with regional equity gauges

A proposal by some of Donald Trump’s advisers to undermine Hong Kong’s currency peg was met with scepticism by traders and analysts, who said such a move would be difficult to implement and risk hurting U.S. interests as much as it would punish China.

Doubts that the idea would gain traction within the Trump administration were reflected in markets on Wednesday, with the Hong Kong dollar holding in a tight range near the strong end of its trading band against the greenback. An increase in the Hong Kong dollar’s 12-month forward points suggested a slight pickup in hedging demand, but they remained well below a May peak.

Hong Kong dollar risk reversals — a gauge of trader sentiment in the options market — were also little changed, reflecting a lower probability of a peg break than during the height of the city’s protests last summer.

Hang Seng Index futures swung between gains and losses as stock investors digested the news, moving largely in line with regional equity gauges.

Shares of HSBC Holdings Plc, the biggest player in Hong Kong’s banking industry, fell as much as 3.1%. The Trump administration has been looking at ways to punish banks in Hong Kong, particularly HSBC, people familiar with the matter told Bloomberg News. The bank’s top Asia executive has come out in support of controversial national security legislation, drawing a rebuke from U.S. Secretary of State Michael Pompeo. Standard Chartered Plc, which has also publicly supported the law, slipped as much as 2.5%.

One reason the market reaction has been muted: The Hong Kong Monetary Authority holds $445.9 billion in foreign exchange reserves to defend the peg should it need to. A closely watched gauge of its reserve adequacy has edged down only slightly during the city’s year of political turmoil.

About the Author: Jonathan Adams

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