The Hong Kong dollar slid to roughly 7.8404-7.841 against the US dollar on June 24-25, its weakest level in approximately 10 months. That puts it uncomfortably close to the 7.85 upper limit of the currency’s pegged exchange rate band, a boundary that has held since the late 1980s.
What’s driving the decline
Hong Kong’s linked exchange rate system operates within a narrow band of 7.75 to 7.85 HKD per USD. When the rate approaches either edge, the HKMA intervenes by buying HKD and selling USD to pull it back.
The current stress comes down to interest rate differentials. When the Fed keeps rates elevated, or markets expect it to, holding US dollars becomes more attractive than holding Hong Kong dollars. Capital flows out of HKD and into USD.
The stablecoin dimension
