Financial encyclopedia

In early May 2025, the Hong Kong dollar repeatedly touched the "mandatory exchange guarantee" level. The Hong Kong Monetary Authority entered the market for four consecutive times, injecting a total of over 120 billion Hong Kong dollars. This is not merely a technical operation; it is also an important signal reflecting the global flow of funds and market sentiment.

What is the "Strong Party Exchange Guarantee"?

Hong Kong has implemented the linked exchange rate system since 1983. The Hong Kong dollar is pegged to the US dollar, and the exchange rate has remained between 7.75 and 7.85. When the Hong Kong dollar rises to 7.75, indicating overly strong demand, the Hong Kong Monetary Authority will take action: buying US dollars and selling Hong Kong dollars to prevent the exchange rate from breaking the upper limit and maintain stability.

Why have you been entering the market frequently recently?

The Hong Kong Monetary Authority has been continuously entering the market recently. There are three major reasons behind this:

The US dollar weakened.

Market expectations of interest rate cuts in the United States have led to a decline in the US dollar, pushing up the appreciation of the Hong Kong dollar.

Capital flows into Hong Kong

Investors are optimistic about the rebound of the Hong Kong stock market, and international and Chinese funds are accelerating their entry.

Carry trade is active

The interest rate of the Hong Kong dollar is higher than that of the US dollar, attracting funds to exchange for Hong Kong dollars in the short term to earn the interest rate spread.

What are the impacts of the Hong Kong Monetary Authority's capital injection?

Interest rates may be cut: The increase in funds will help lower the HIBOR, which is beneficial for mortgage borrowers.

The attractiveness of assets has risen: Hong Kong dollar assets such as local bonds, high-yield stocks, and REITs are more favored.

Stable confidence: The Hong Kong Monetary Authority's actions demonstrate institutional firmness and help align market expectations.

Will the Hong Kong stock market improve as a result?

Capital inflow does not equal long-term investment. For instance, carry trade is a short-term strategy and its support for Hong Kong stocks may not last long. The future trend still depends on whether funds remain in Hong Kong, the local economic performance and changes in the international situation.

The Hong Kong dollar touching the strong side is actually a reflection of the global redeployment of funds. The entry of the Hong Kong Monetary Authority into the market is precisely an important indication of this transformation. If investors can understand the logic involved, they will be better able to grasp trends and enhance their financial judgment.