Marché Nouvelles

(Bloomberg) -- Hong Kong’s currency fell to the weak half of its trading band for the first time since December 2019 as the emergence of a new Covid variant weakened the demand for risky assets. 

The exchange rate fell to 7.8 per greenback, the midpoint of its 7.75 to 7.85 allowed trading range against the U.S. currency. The Hong Kong dollar has fallen 0.3% in November to head for its biggest monthly loss since February 2020.

Selling pressure on the Hong Kong currency has re-emerged as the greenback rallied on bets that the Federal Reserve will tighten policy given robust U.S. economic data. Moreover, the city reported three incoming travelers with a new Covid-19 strain that was first discovered in southern Africa. Concerns about the variant have boosted demand for haven assets such as Treasuries and sent risk assets tumbling globally.

A drop beyond 7.8 opens the door for the city’s currency to slide toward the weak end of the trading range, which could prompt the local monetary authority to intervene. However, the city’s de facto central bank will increase its issuance of debt in November and December, a move that could drain interbank liquidity and thus make it less lucrative for traders to short the Hong Kong dollars.