Hong Kong’s de facto central bank has intervened in currency markets to defend the city’s currency peg in a move that threatens one of the world’s most attractive carry trades.
The Hong Kong Monetary Authority said on Thursday that it intervened in foreign exchange markets after the Hong Kong dollar weakened past HK$7.85 per US dollar, the weak end of its band.
The HKMA used HK$9.4bn ($1.2bn) of its reserves to buy Hong Kong dollars on the open market, which will drain liquidity out of the banking system. The move is set to push up interbank lending rates, which have hovered near zero since early May.
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