Traders have increased positions on the decline of the Hong Kong dollar, writes RBC. The rate of this currency fell by almost 1% after an 18-month peak in December. This was caused by a decrease in the interbank borrowing rate, and as a result – widening the gap with similar to the U.S. rates to the maximum since 2008. The wide spread made it profitable to buy Hong Kong’s currency – traders were able to borrow it cheaply and sell it for U.S. dollars, for which rates are higher.

The benchmark of the Hong Kong currency market HIBOR (interbank rate) has moved to fall. HIBOR is now 160 bps below LIBOR, which is calculated for several currencies, including the US dollar. For comparison, in early December, HIBOR was 90 bps above LIBOR.

Kelvin Lau, senior economist at Standard Chartered (LON:STAN) Bank’s Hong Kong unit, said the fall in the Hong Kong dollar was exacerbated by the high base effect.

“The combination of the Fed’s less stringent rate outlook and improved prospects for a resumption of local market operations likely fueled expectations of renewed capital inflows,” Lau said.

In December, banks expected limited liquidity in the currency after the holidays, but their initially pessimistic forecasts did not materialize.

Analysts at Oversea-Chinese Banking believe the USD/HKD pair is likely to stay above the 7.80 level in the short term. The growth potential of the HIBOR – LIBOR spread is limited, experts said. The HKD exchange rate at 14:30 MSC on January 27 was 7.83.

The founder of hedge fund Pershing Square (NYSE:SQ) Bill Ackman said last November that he bets on the fall of the Hong Kong currency and the end of its peg to the U.S. dollar. The same pessimistic view on Hong Kong’s currency was shared by Hayman Capital founder Kyle Bass and billionaire George Soros.