Hong Kong braces for higher rates as currency losses accelerate

Hong Kong

HOW long can it last? That's what watchers of Hong Kong's markets are asking as the gap between local and US interbank rates widens to the most since 2009. The city's currency peg to the greenback effectively ties its monetary policy to that of the US, making the growing differential all the more curious.

Now things may be changing, with forward points and interest rate swaps in Hong Kong's dollar starting to bottom out. The reasoning is simple: with the currency having fallen to the middle of its permitted band and the US expected to continue raising rates, it's a matter of time before the city's exchange rate reaches its weak limit, forcing the local monetary authority to suck in liquidity.