FXStreet (Guatemala) – Analysts at Brown Brothers Harriman explained that the Hong Kong dollar weakened sharply this week, with the US dollar trading at its highest level since late 2011.
Key Quotes:
“Yet HKD remains in the strong half of the 7.75-7.85 trading band and below the midpoint peg rate of 7.80. We do not think it is a speculative attack, as some in the press are suggesting. Rather, we think it reflects another leg in capital outflows from the mainland. Either way, we see the peg remaining in place for the foreseeable future.
“We can’t put it any better than the IMF did in its annual Article IV consultation from November: “The Linked Exchange Rate System (LERS) remains the best arrangement for Hong Kong SAR and serves as an anchor of stability for this small open economy with a globally integrated financial services industry.
The smooth functioning of the LERS derives from the robust institutional, legal and policy framework in place in Hong Kong SAR; the ample fiscal reserves available to cushion the economy from adverse shocks; the healthy financial system that can accommodate large portfolio adjustments; and, more generally, flexible asset, goods, and labor markets that can adjust quickly to ensure misalignments in the real effective exchange rate (REER) do not persist.””
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