Hong Kong dollar edges lower

The Hong Kong dollar fell against a broadly stronger US dollar on Wednesday, while most interbank rates came off from the day's highs. The domestic currency was trading at 7.8168/70 to the US dollar, a touch lower than 7.8151/57 in late Tuesday trade in Asia.
Traders said a combination of factors was pushing the local currency lower. "A firmer dollar/yen and sluggish stock market has some impact on sentiment," a trader said. Another dealer said short-dated interbank rates remained soft, encouraging interest rate arbitrage activities. The Hong Kong dollar is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85.
The US dollar hit a 4-1/2 year high against the yen and an 11-week peak versus the euro on Wednesday, boosted by a surge in US bond yields. Hong Kong stocks fell on Wednesday amid interest rate worries, with the blue chip Hang Seng Index ending 0.28 percent lower and the China Enterprise index of H shares losing 0.17 percent. Some dealers said the Hong Kong dollar would move in a narrow range against the US dollar of 7.8150 and 7.8200 near term, given that the interest rate differential with the United States offers an arbitrage opportunity.
In the interbank market, short-term rates softened from morning highs after some lenders hit the offer side of the market in the afternoon session. The overnight rate was quoted at 3.75/3.80 percent, off a high of 4.15 percent and down from the previous day's close at 4.00/4.05 percent.
The one-month rate eased to 4.23/4.28 percent late in the day versus 4.28/4.32 percent early in the morning and 4.25/4.30 percent late on Tuesday. Hong Kong dollar forwards were choppy.
The discount on longer-dated forwards traded narrower earlier in the day in response to a rise in US Treasury yields, but soon the market reversed course in view of steady short-term interbank rates. One-year forwards were trading at a discount of 580/565 pips, compared with 555/535 pips early in the morning and Tuesday's close of 565/550 pips.