LONDON, March 8 (Reuters) - The Hong Kong dollar fell to a new 33-year low on Thursday, inching closer to the lower end of the monetary authority’s targeted trading band, as the interest rate gap between U.S. dollar rates and Hong Kong counterpart widened further.
Because the former British colony pegs its currency to the greenback, its money market rates mirror that of its U.S. counterparts.
But the gap between the two has widened to the highest since the 2008 financial crisis, as the U.S. central bank is in the midst of raising interest rates, but the Hong Kong money market remains awash with liquidity thanks to equity market inflows and remnants of money printing from global cental banks.
On Thursday, the Hong Kong dollar fell to a new 33-year of 7.84 per dollar.
The Hong Kong Monetary Authority, the city’s central bank, has pegged the local currency at 7.8 to the U.S. dollar since 1983, but it allows it to trade between 7.75 and 7.85.
As the currency approaches the lower end of a trading band, expectations are growing the central bank will announce a hefty issuance of bills to drain the excess liquidity out of its money markets. (Reporting by Sujata Rao and Saikat Chatterjee)