HONG KONG/SHANGHAI (Reuters) – Hong Kong has no intention and sees no need to change the system that pegs the city’s currency in a tight band to the U.S. dollar and has the ability to defend it, the chief executive of Hong Kong’s de facto central bank said on Thursday.

Eddie Yue made the remarks amid recent strength in the Hong Kong dollar, which surged to a 3-1/2 year high against the U.S. currency last week, not far from testing the strong end of the system’s trading band.

Under Hong Kong’s Linked Exchange Rate System (LERS), the financial hub’s currency is confined to a range between 7.75 and 7.85 to the greenback, and the Hong Kong Monetary Authority (HKMA) is committed to intervening to maintain the band.

“Despite the recent interest in LERS and even speculation regarding potential geopolitical shocks, the Hong Kong dollar market has continued to operate smoothly in accordance with the design of the LERS,” Yue said in a statement posted on HKMA’s website.

“And let me reiterate, we have no intention and we see no need to change the LERS.”

The financial hub has sizeable foreign reserves of over $420 billion, equivalent to about 1.7 times its monetary base, which Yue said meant “ensuring the smooth functioning of the LERS at all times”.

A string of factors, including seasonal funding shortages, buying by mainland Chinese investors and listed companies’ increasing dividend payments contributed to the tight liquidity in Hong Kong and underpinned the currency, traders and analysts said.

Yue said the HKMA was paying close attention to discussions about the exchange rate system, which has weathered numerous economic cycles and multiple financial crises.

“As a small, open economy and major international financial centre, exchange rate stability is crucial for Hong Kong,” Yue said, dismissing the view that a strengthening Hong Kong dollar alongside the greenback would hinder the city’s economic recovery.

Analysts at Barclays (LON:) expect the Hong Kong dollar to stay close to 7.75 per dollar in January, but look for it to weaken subsequently.

“We think global factors are likely to keep sentiment subdued and support , especially after the positive impulse from dividend payouts by HK-listed firms and (as) IPO activity fades,” they said in a note published this week.

“The onshore buying of Hong Kong stocks may continue due to lack of better investment alternatives, but it would need more foreign participants to buy Hong Kong stocks for HKD demand to be lifted more durably.”

By Gabriel Burin

BUENOS AIRES (Reuters) – Brazil’s real currency is forecast to trade slightly stronger, at around 6 per U.S. dollar at the end of 2025 following a punishing year of losses, a Reuters poll of foreign exchange analysts showed.

The real fell around 22% in 2024, mainly due to investor disappointment about a fiscal package introduced by President Luiz Inacio Lula da Silva’s economic team to correct worrying debt trends.

Losses in Brazilian assets only stopped after Brazil’s central bank sold nearly 10% of its reserves throughout the last three weeks of 2024. The real has now stabilized following last month’s meltdown to a record low.

But like many other emerging market currencies, there is little prospect for making much positive headway this year so long as the U.S. retains its dominance in currency market bets. 

The currency is expected to trade at 5.94 per dollar in one year, 2.7% stronger than its closing value of 6.10 on Tuesday, according to the median estimate of 25 analysts polled Jan. 3-8.

“Pressure on the real was exacerbated by the market’s negative perception of progress of the government’s spending cut package in Congress,” analysts at Sicredi wrote in a report.

“Despite the (central bank) intervention, unfavorable dynamics for the Brazilian currency continue to be a significant challenge.”

In December, Banco Central do Brasil (BCB) sold $22 billion of its reserves in spot foreign exchange markets and another $11 billion through repurchase agreements. It has not intervened again in the first days of 2025.

“Higher yields in the U.S. and the perception of greater fiscal risk in Brazil should keep the currency at the new level (6 per dollar),” analysts at Banco Inter wrote in a report.

U.S. Treasury yields edged higher on Tuesday after data showed the U.S. economy remained resilient, supporting market expectations the Federal Reserve may have only one quarter-point interest rate cut left to deliver.

Latin American currency strategists are also waiting for what U.S. President-elect Donald Trump announces after his inauguration on Jan. 20, wary of any potential plan to apply sweeping tariffs that could hit the Mexican peso even further.

The currency fell nearly 19% in 2024 on tariff fears as well as concerns related to controversial judicial reforms.

The peso is forecast to trade at 20.90 per dollar in 12 months, or 2.8% weaker than its value of 20.31 on Tuesday.

(Other stories from the January Reuters foreign exchange poll)

(Reporting and polling by Gabriel Burin in Buenos Aires; additional polling by Indradip Ghosh and Mumal Rathore in Bengaluru; Editing by Alexandra Hudson (NYSE:))

Investing.com – The US dollar steadied Thursday, underpinned by rising Treasury yields after hawkish comments from the Federal Reserve and strong economic data furthered bets on a slower pace of rate cuts.

At 04:35 ET (09:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded largely unchanged at 108.920, just shy of the two-year high it touched last week. 

Trading ranges are likely to be limited Thursday, with US traders on holiday to honor former President Jimmy Carter, with a state funeral due later in the session. 

Dollar retains strength

The of the Fed’s December meeting showed policymakers increasingly geared towards a slower pace of rate cuts in 2025 amid new inflation concerns, while recent jobs data has pointed to underlying strength in the labor market.

Additionally, Fed officials saw a rising risk that the incoming Trump administration’s plans may slow economic growth and raise unemployment. 

This has seen the yield on the benchmark 10-year U.S. Treasury note hitting its highest level since April in recent days.

“The market now prices a pause at the 29 January meeting and does not fully price a 25bp cut until June,” said analysts at ING, in a note. “We have five Fed speakers later today, but the next big impact on expectations of the Fed easing cycle will be tomorrow’s December NFP report, where some see upside risks.”

“Equally, the dollar is likely to stay strong into Trump’s inauguration on 20 January.”

German economic weakness weighs on euro

In Europe, fell 0.1% to 1.0306, remaining close to the two-year low it hit last week on recent signs of economic weakness, particularly in Germany, the region’s largest economy.

and rose more than expected in November, according to data released earlier Thursday, but the outlook for the eurozone’s largest economy remains weak.

Exports increased by 2.1% in November, while industrial production rose by 1.5% in November compared to the previous month.

However, “this rebound in industrial activity unfortunately comes too late to avoid another quarter of stagnation or even contraction,” said Carsten Brzeski, global head of macro at ING.

The is widely expected to ease interest rates by around 100 basis points in 2025, and this, slough with concerns over US tariffs, could see the single currency fall to parity with the US dollar this year.

traded 0.5% lower to 1.2296, falling to its weakest level since April on concerns surrounding the UK bond market as British government bond yields hit multi-year highs.

“The gilt sell-off has … dented that confidence in sterling and the risk now is that sterling longs get pared as investors reassess sterling exceptionalism,” ING added.

Yuan weakens after inflation data

In Asia, rose 0.3% to 7.3542, with the Chinese currency remaining close to its weakest levels in 17 years after barely grew in December, while the shrank for a 27th consecutive month.

The print showed little improvement in China’s long-running disinflationary trend, and signaled that Beijing will likely have to do more to shore up economic growth.

dropped 0.2% to 158.08, with the Japanese currency boosted by average cash earnings data reading stronger than expected for November. 

The data furthered the notion of a virtuous cycle in Japan’s economy – that increasing wages will underpin inflation and give the Bank of Japan more impetus to hike interest rates sooner, rather than later.