The Hong Kong dollar is approaching the weaker side of the exchange rate guarantee level. Traders are selling in arbitrage trading.

The Hong Kong dollar is approaching the weak end of the trading range, and local interest rate cuts are prompting traders to increase borrowing in Hong Kong dollars for arbitrage trading. The Hong Kong dollar briefly fell to a low of 7.8294 against the US dollar, close to the weak end exchange guarantee of 7.85. The Hong Kong dollar has fallen by nearly 1% since May, marking the largest monthly drop since the implementation of the linked exchange rate system in 1983. In recent weeks, the Hong Kong dollar has been under pressure, with the interest rate spread between Hong Kong and the United States widening to record levels. After the sharp drop in the US dollar pushed the Hong Kong dollar closer to the strong end exchange guarantee level, the Hong Kong Monetary Authority injected liquidity into the financial system earlier this month.