The Hong Kong Monetary Authority triggered the weak-side Convertibility Undertaking ("CU") under the Linked Exchange Rate System ("LERS") today, selling HK$9.42 billion worth of US dollars. This action reduces the Aggregate Balance to HK$164.1 billion and follows the strong-side CU inflows of HK$129.4 billion in early May, which led to a decline in HKD interbank rates. The CU's triggering aligns with market conditions and HKMA's monitoring of these conditions to maintain orderly HKD markets.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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On June 26, 2025, the Hong Kong Monetary Authority ("HKMA") initiated the weak-side Convertibility Undertaking ("CU") under the Linked Exchange Rate System ("LERS"), selling US$9.42 billion in HKD during the New York trading session. Consequently, the Aggregate Balance dropped to HK$164.1 billion by June 27, 2025. This was the most recent instance of the weak-side CU being activated, following a similar event in May 2023.
The decision to implement the weak-side CU was aligned with prevailing market conditions. In early May, the strong-side CU was invoked multiple times, resulting in total inflows of HK$129.4 billion. These inflows led to heightened liquidity in the HKD market, which in turn depressed interbank rates and widened the HKD-USD interest rate differential. This environment fostered carry trade activities, ultimately contributing to a depreciation of the HKD exchange rate.
Several factors converged to create an increased demand for a decrease in the value of the HKD. These include the conclusion of the stock dividend payout season, the currency conversion of HKD proceeds from recent initial public offerings ("IPOs") and bond issuances by non-local companies for repatriation purposes, and the completion of half-year-end funding preparation activities.
Chief Executive Eddie Yue of the HKMA advised the public to exercise prudent management of interest rate and market risks. Depending on future capital flow direction and HKD supply-demand dynamics, the weak-side CU may be invoked again. As the Aggregate Balance decreases, HKD interbank rates may rise, which is consistent with the LERS's design. The HKMA will continue to closely scrutinize market developments and the external environment to ensure the smooth operation of the Hong Kong dollar market.
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