Hong Kong central bank gushes cash to prop up U.S. dollar

Section:

By Cassie Biggs
Associated Press
via Yahoo News
Wednesday, October 31, 2007

http://biz.yahoo.com/ap/071031/hong_kong_currency.html?.v=1

HONG KONG -- Hong Kong's de-facto central bank stepped in four times Wednesday to defend the Hong Kong dollar's peg to the U.S. dollar, injecting about $800 million worth of local currency into the red-hot market.

The Hong Kong Monetary Authority injected a total 6.2 billion Hong Kong dollars ($800 million) into the market, said Peggy Lo, spokeswoman for the authority.

"I expect the intervention will typically come in a wave, rather than being one-off," Claudio Piron, a JPMorgan analyst, told Dow Jones Newswires. "We'll likely continue to see more intervention going forward."

Under Hong Kong's currency board system, the Hong Kong dollar is pegged at 7.80 to the U.S. dollar but is allowed to trade between 7.75 and 7.85. When the Hong Kong dollar reaches the limits of its trading band, the monetary authority can be expected to intervene, Lo said.

Analysts said they expect further interventions if the U.S. Federal Reserve cuts its key interest rate later Wednesday.

The Hong Kong dollar has been rising against the U.S. dollar as investors pour money into the soaring Hong Kong stock market. The U.S. dollar is also at multiple-decade lows against many major currencies. Another interest rate cut will weaken it further.

The Hong Kong dollar hovered near 7.75 to the U.S. dollar all morning Wednesday before the Hong Kong Monetary Authority began buying greenbacks to keep the local currency within the trading range.

Wednesday's moves follow two interventions by the HKMA last week, which were its first such actions in more than two years, causing speculation that Hong Kong might widen the peg, or drop it all together.

Lo said the Hong Kong government is "totally committed" to the linked exchange rate mechanism. Rumors that it's lobbying Beijing to drop the peg are "unfounded," she said.

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