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Pressure on Hong Kong dollar as U.S. rates rise
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Hong Kong interest rates zoom as interbank liquidity dries
up
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Currency last loitering around the middle of the band
SINGAPORE, Nov 24 (Reuters) - Billionaire investor Bill
Ackman said he's betting the Hong Kong dollar will fall and that
its peg to the U.S. dollar can break, the latest big money
manager to take a public short bet as U.S. rate hikes turn the
blowtorch on Hong Kong's currency system.
"We have a large notional short position against the Hong
Kong dollar through the ownership of put options," he said on
Twitter. "The peg no longer makes sense for Hong Kong and it is
only a matter of time before it breaks."
The details of Ackman's position were unclear. A spokesman
for Ackman's fund, Pershing Square, declined to comment further.
The Hong Kong dollar has been pegged in a tight
band between 7.75 and 7.85 per greenback for nearly four decades
and tends to face pressure - and thus far unsuccessful
speculative challenges - every time U.S. interest rates go up.
The Hong Kong Monetary Authority maintains the peg by moving
interest rates in lockstep with the U.S. Federal Reserve and by
currency intervention, which drains Hong Kong liquidity and is
designed to drive local rates up until inflows stabilise the
currency.
Earlier in the month, Hong Kong's financial secretary sought
to warn speculators.
"If you bet against the Hong Kong dollar, you are bound to
lose," Paul Chan told an audience at an investment summit in the
city.
However, some economists say the speed and scale of this
hiking cycle is the sternest test yet, particularly as Chinese
growth falters, making for an uncomfortable time to be raising
rates.
U.S. fund manager Kyle Bass has long bet against the Hong
Kong dollar and told Reuters on Thursday he had a fund dedicated
to being short Hong Kong dollars versus the U.S.dollar.
"It's nice to finally have others agreeing with our thesis.
Rigid currency pairs harnessed to asynchronous economies are
destined to fail," Bass said in an emailed response.
"One bad day of deposit/currency outflows will likely bring
unimaginable stress to the situation. The press and the HKMA
like to tout 'Total Reserves' but just imagine if the HKMA had
to sell HK stocks or private equity in order to defend the peg."
American investor George Soros is among those who have in
the past bet against the peg, but his 1998 attack on the peg was
in vain.
Liquidity is draining very fast as the HKMA has sucked up
about $30 billion in some 40 rounds of intervention since the
Fed began raising rates in March.
Earlier this month, the aggregate balance - a key gauge of
cash in the banking system - fell below HK$100 billion ($12.8
billion) for the first time since 2020.
The one-month Hong Kong Interbank Offer Rate
currently stands at a 14-year high.
Since May, the Hong Kong dollar has been pinned near the
weaker end of its band, although it has lifted a bit in recent
weeks as markets start to price a peak in U.S. rates. It was
last at 7.8142 per dollar.
A spokewoman at the HKMA said it would not comment on any
individual's commentary about the peg.
However, "some market participants have at various times
expressed their queries about HK's linked exchange rate system
(LERS) over the years. These comments are primarily based on
their own misunderstanding on the HK's system, or the position
of their own books," she wrote in an email reply to Reuters.
The LERS has endured several economic cycles and periods of
significant capital flows over its nearly 40 years of operation,
continues to perform well and does not need to change, the HKMA
said.
($1 = 7.8132 Hong Kong dollars)
(Reporting by Tom Westbrook in Singapore and Georgina Lee in
Hong Kong; Editing by Kim Coghill, Sam Holmes and Edmund
Klamann)