Hong Kong Makes Largest Dollar Purchase to Protect Currency Peg

Hong Kong intervened to defend its currency peg to the US dollar by purchasing a record amount of the greenback after the city's exchange rate reached the upper limit of its trading range.

The Hong Kong Monetary Authority spent approximately $6 billion (HK$46.539 billion) buying the US dollar, its largest daily purchase since records began in 2004, according to data compiled by Bloomberg.

The latest move by the Hong Kong Monetary Authority came against the backdrop of a weakening US dollar, which pushed the Hong Kong dollar closer to the upper limit of its trading range of 7.75 to 7.85 per dollar. Authorities have previously intervened in the market to sell US dollars, including in 2022 and 2023, when the local currency was close to breaking the lower limit of the trading range.

This intervention comes to contain the local currency's rise at a time when other central banks in the region are facing increasing turmoil in foreign exchange markets. On Friday, Taiwan's central bank intervened in the foreign exchange market after the Taiwanese dollar rose 3% against its US counterpart, its largest daily jump since 1988.

Currencies in the region rose amid hopes for trade talks with Washington, the first indication since US President Donald Trump raised tariffs last month that negotiations between the two sides could begin.

Trump's trade policies have shocked financial markets, prompting some investors to question the US currency's status as a safe haven. As a result, traders have begun betting against the dollar and shifting their investments away from US assets after years of favoring it.

The Bloomberg Dollar Spot Index, which tracks the US dollar's performance against a basket of major currencies, recorded its worst monthly performance since 2022 in April, down 6.5% year-to-date.

The Hong Kong dollar's policy of pegging to the US dollar dates back to 1983, when it was adopted to stem the depreciation of the exchange rate amid negotiations over the handover of the British colony to China. In 2005, the permissible trading band for the currency was expanded to between 7.75 and 7.85 to the US dollar.