31st December 2024 – (Hong Kong) The Hong Kong dollar has surged to its highest value in three and a half years, reaching 7.7609 per U.S. dollar on 30th December, 2024. This increase, attributed to a seasonal spike in demand, has lifted the currency’s December performance by 0.3%.
The overnight Hong Kong Interbank Offered Rate (Hibor) soared to a historic high of 6.5%, reflecting increased liquidity needs among banks as they prepare to meet regulatory requirements at year-end. Additionally, higher dividend payouts from Chinese companies listed in Hong Kong and a growing interest from mainland investors in local stocks have further fueled demand for the currency.
Ken Cheung, chief Asian foreign-exchange strategist at Mizuho Bank, noted that the rising Hibor is likely due to a liquidity squeeze and a low aggregate balance in Hong Kong. He expects the interest rate premium of the Hong Kong dollar over the U.S. dollar, combined with dividend-related demand, will likely push the currency below the 7.76 mark.
Despite challenges, the Hong Kong dollar has remained resilient, maintaining its peg to the U.S. dollar within a trading band of 7.75 to 7.85. The current funding squeeze has led to local interest rates outpacing those in the U.S., with the one-month Hibor at 4.59%, marking the widest gap in a year.
