December 9, 2022

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Bill Ackman wants to break Hong Kong’s peg to the U.S. dollar

2 min read

Bill Ackman, founder and CEO of hedge fund Pershing Square Capital Management, is betting against the Hong Kong dollar.

The Hong Kong dollar, the currency used by the semi-autonomous Chinese city, trades within a narrow band of 7.75 and 7.85 Hong Kong dollars to the U.S. dollar, in a peg that has survived for almost 40 years. Yet a weakening Hong Kong dollar, which has forced the city’s government to intervene in the currency market 40 times this year to preserve the peg, is leading some to think the peg will finally fall.

“The peg no longer makes sense for Hong Kong and it is only a matter of time before it breaks,” Ackman tweeted, revealing that his fund has a “large notional short position against the Hong Kong dollar.”

Ackman was responding to a Bloomberg opinion column from fund manager Richard Cookson, which argued that the Hong Kong government would be forced to increase spending (and thus debt) to help its COVID-battered economy recover.

Pershing Square Capital Management did not immediately respond to a request for comment. 

Supporting the peg

The Hong Kong dollar has traded near the top of its band for much of the year, as traders sold the currency in favor of the higher-yield U.S. dollar. (The U.S. dollar has strengthened against many of the world’s currencies due to the U.S. Federal Reserve’s aggressive interest rate hikes to control inflation.) 

The Hong Kong Monetary Authority (HKMA)—the city’s de facto central bank—has had to tap into its foreign reserves to preserve the peg, selling its U.S. dollar assets in order to buy Hong Kong dollars on currency markets. The HKMA has bought

Nicholas Gordon

2022-11-24 05:00:35

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