Investment Rating - The report indicates a cautious approach towards the Hong Kong dollar, suggesting a light holding of positions due to market volatility and uncertainty in exchange rate direction [4]. Core Insights - The rising cost of Hong Kong dollar funding poses risks, necessitating banks to maintain higher liquidity buffers. Market liquidity has decreased, exacerbating market anxiety among carry traders [1][2]. - The yield curve is flattening, with short-term financing costs remaining high. The market is seeking yield protection for 1 to 3-month terms, with 3-month rates recently exceeding 2% [1][3]. - The report highlights the potential for arbitrage opportunities in the Hong Kong dollar, but emphasizes the importance of risk-reward ratios and timing for entry [5]. Summary by Sections Hong Kong Dollar Analysis - The significant volatility in the Hong Kong dollar is attributed to a general complacency in the market, with banks needing to hold higher liquidity buffers due to large settlement demands [2]. - The current state of the spot market is chaotic, with a preference for light positions until further evidence of exchange rate direction emerges [4]. Yield Curve and Market Behavior - During the initial volatility, there was increased interest in long-term sports betting, reflecting expectations that Hong Kong dollar arbitrage remains attractive despite recent price declines [3]. - The yield curve is currently flat, with a concentration of price movements at the front end, indicating a market focus on short-term yield protection [3]. Taiwan Dollar and Indian Rupee Insights - The Taiwan dollar is expected to appreciate moderately in the second half of the year, with increased hedging to mitigate liquidity ratio deterioration risks [7]. - The Indian rupee faces pressure due to changing trade sentiments and capital outflows, with expectations of reaching a target of around 87 by year-end [10].