The Hong Kong dollar (HKD) has displayed resilience in October amidst ongoing uncertainty surrounding US interest rates. With inflation easing slightly, a collection of government measures has been introduced to bolster Hong Kong's position as a preeminent international financial hub. These actions, emphasized by Chief Executive John Lee’s policy announcements on October 16, are essential parts of China's national five-year plans but come against a backdrop of a slow economic recovery.
Recent forecasts indicate that while these initiatives might provide temporary support, significant improvement in the local economy is unlikely unless interest rates are lowered further. The labour market remains partially recovered, and expectations of continuing declines in home prices could dampen domestic demand recovery. Analysts warn that the effectiveness of announced economic measures will need to be assessed over time.
In February, the HKD maintained stability against the USD, showing only a slight dip of less than 0.2%, despite economic challenges including slowed growth and lower inflation rates. The government implemented significant measures aimed at supporting the property sector, such as removing extra stamp duties for non-permanent residents and easing mortgage regulations. These moves were welcomed, yet they were not enough to reverse a downward trend in HKD against USD, particularly as the Fed's potential dovish stance on future interest rate paths might play a crucial role in influencing the currency's strength.
Current price action shows the HKD to USD trading at near 90-day lows around 0.1274, which is 0.5% below its three-month average. The currency has exhibited a stable trading range of 1.3% between 0.1274 and 0.1290. In contrast, the HKD to EUR, GBP, and JPY have shown notable volatility, with the HKD to EUR at lows of 0.1081 (4.3% below its three-month average), the HKD to GBP at 0.0927 (3.3% below its average), and the HKD to JPY at 18.30, which is 1.1% below its average. The trading ranges for these currency pairs reflect heightened volatility and suggest that external factors could further influence the HKD's performance in the coming months.
Market participants will be closely monitoring the effectiveness of the government's measures and any changes in the Federal Reserve's outlook, as these will significantly impact the HKD's strength moving forward.
