Core Viewpoint - The Hong Kong dollar (HKD) has been depreciating against the US dollar (USD), approaching the weak end of the currency peg at 7.85 HKD per USD, following a period of strong performance that triggered the "strong-side convertibility guarantee" at 7.75 HKD per USD in early May [2][3][5]. Currency Exchange Dynamics - Since April, the USD has depreciated against Asian currencies, leading to an appreciation of the HKD, prompting the Hong Kong Monetary Authority (HKMA) to intervene by injecting significant liquidity into the market, totaling 129.4 billion HKD from May 2 to May 5 [3][4]. - The HKMA's actions resulted in a substantial increase in HKD liquidity, causing the Hong Kong Interbank Offered Rate (HIBOR) to decline, which widened the interest rate differential between HKD and USD [3][6]. Interest Rate Trends - The release of liquidity by the HKMA has led to a significant drop in HKD deposit rates, with major banks offering rates as low as 1% for HKD time deposits, while USD deposit rates remain above 3% [4][9]. - As of June 19, 2023, the HKD deposit rates at major banks have decreased sharply, with HSBC offering a maximum of 1.1% for new funds, highlighting the disparity between HKD and USD deposit rates [9][10]. Market Reactions - The HKD has seen a decline from 7.75 to 7.82 against the USD by May 20, 2023, as liquidity conditions in the banking system remained abundant, leading to lower borrowing costs and prompting investors to buy USD while selling HKD [7][8]. - The HKMA has not yet intervened to buy HKD despite the currency nearing the weak end of the peg, indicating a potential future action to manage liquidity levels [8]. Economic Implications - The current low interest rate environment in Hong Kong is viewed as beneficial for the overall economic conditions, although the sustainability of these low rates is uncertain due to fluctuating global trade and economic prospects [11].