The American dollar continues to lose its strength against most currencies in recent weeks – the pound, which reached an all-time low against the dollar at the end of September ($1.035 per pound), rose by about 7% to $1.21 per pound last month. The euro also Strengthens against the American dollar – 5.5% in the last month. Compared to these currencies, the Hong Kong dollar trades at a fixed price of about 0.128 US dollars to the Hong Kong dollar, this is because the Hong Kong Monetary Authority takes care to intervene in the foreign exchange market and ensure that the peg remains sincere Despite the weakening of the US dollar against the rest of the world’s currencies, there are now those who believe that the Hong Kong dollar will lose its peg and drop down.
One of the world’s most well-known hedge fund managers, billionaire Bill Ackman, believes that the US Fed’s monetary policy will lead to the depreciation of its currency and announced in a tweet on Twitter that he entered a short position against the island’s dollar.The peg no longer makes sense for Hong Kong and it’s only a matter of time before it breaksAckman said about the conduct of the Hong Kong Monetary Authority.
Hong Kong is of course affected by the situation in China, even though the government treats it differently than the rest of the country. The corona situation in China, which has worsened again in recent weeks, in addition to the election of Xi Jinping for a third term, have made investors very pessimistic about the functioning of the island’s economy – just about a month ago, the stock market reached its lowest point in 13 years. Since that low point the index still managed to fall but in the last 30 days it jumped back up by 16%.
The main concern regarding Hong Kong’s currency stems from the Fed’s continued interest rate hikes. In order to maintain the peg of the Hong Kong dollar to the American one The Hong Kong Monetary Authority has so far been forced to spend about 15% percent of its total reserves – about $30 billionmore money than it had to spend in the crisis of 1997. As the Fed continues to raise the interest rate, the monetary authority is required to sell more and more of its reserves in order to stabilize the price of its currency and as he said – Ekman believes that there is no logic in this matter anymore.
“Ackman is not the first to bet against the peg, George Soros and Kyle Bass have done it in the past and lost, but the Fed’s interest rate hikes make it more and more difficult for the Hong Kong Monetary Authority to do so,” said analyst Neil Wilson of Finalto. One of the matters that makes it difficult for the Monetary Authority to continue to carry out the peg operation is of course the corona virus that continues to rise in China and also affects Hong Kong, which also leads to closures and a slowdown in the economy and the matter only puts another weight on the peg attempt.
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