The Hong Kong Monetary Authority (HKMA) intervened in the foreign exchange market twice on the morning and afternoon of May 6 to stabilize the Hong Kong dollar exchange rate, making it the fourth time in four days that the institution has intervened in the currency market, injecting a total of HK$129.4 billion, which has drawn widespread attention from the market.
According to reports from the Hong Kong media, the HKMA announced the sale of HK$60.543 billion (equivalent to $7.812 billion) in the morning of May 6, followed by another announcement in the afternoon session that HK$12.788 billion (equivalent to $1.65 billion) was sold to the market, bringing the balance of the Hong Kong banking system to HK$174.1 billion.
A spokesperson for the HKMA revealed that after selling Hong Kong dollars last Friday and Monday of this week, the operation on Tuesday (May 6) aimed to stabilize the Hong Kong dollar exchange rate at a level not higher than HK$7.75 against the US dollar.
Since May 3, the Hong Kong dollar has consistently hit the strong-side convertibility undertaking level under the linked exchange rate system for the first time since October 2020, triggering the HKMA’s market intervention.
Facing recent fluctuations in the Hong Kong dollar, HKMA Chief Executive Eddie Yue stated during a meeting of the Legislative Council’s Finance Committee on May 6 that three main reasons are expected to continue driving up demand for the Hong Kong dollar, including large IPOs coming to Hong Kong and major corporate dividends.
Furthermore, after US President Trump announced tariff policies in early April and initiated trade negotiations with multiple countries, the market began speculating in May on the appreciation of Asian currencies to weaken trade surpluses with the United States. Several Asian currencies, including the New Taiwan Dollar, Japanese Yen, South Korean Won, and Thai Baht, have shown strength.
Analysts have warned that Hong Kong’s economy is heavily reliant on finance and real estate in the long term, lacking innovation and putting pressure on small and medium-sized enterprises, leading to an expanding wealth gap that remains unresolved. Tensions in US-China relations, unclear Mainland China policies, and the closed political environment in Hong Kong have made international capital confidence in Hong Kong fragile. The pressure of foreign capital outflows and economic vitality decline still exists, and the short-term strength of the Hong Kong dollar exchange rate cannot conceal these deep-rooted issues.