TNAG-2977-FCO40-1469-Economic-policy-in-Hong-Kong-1982 — Page 131

The foreign exchange market

3.13

During the first half, the Hong Kong dollar

consolidated the recovery that had begun towards the end of

1981. The trade-weighted exchange rate index for the Hong Kong dollar depreciated a little in the first half of January

to 84.1 from 85.9 at end-December, but in the following three

months, backed by firm domestic money market rates, the index

rose steadily to 89.3 in mid-April. In then eased to 87.4 on

12th May, but subsequently, despite the reductions

in local

interest rates, the Hong Kong dollar, along with the US dollar, gained ground against other major currencies, to the

extent that the index reached 90.3 on 26th June its highest

level for eleven months

month before ending the

at 89.7.

This was 4.4% higher than at the end of December 1981. Over

the same period, the import-weighted index rose by 6% and the

export-weighted index by 2%.

3.14

A

-

Against the US dollar alone, the Hong Kong dollar

declined from HK$5.69 per US dollar at the end of December

1981 to HK$5.94 in mid-February 1982, reflecting largely the

general strength of the US dollar. The rate then recovered to HK$5.77 in mid-March, aided by a narrowing of the differential

between local and US dollar interest rates. In the following

two months, the rate stabilised mostly within the range of

HK$5.81 to HK$5.85. After a brief rally to HK$5.71 on 24th

May, the Hong Kong dollar was affected by a general firmness

in the US dollar, accompanied by a widening interest rate

differential in the latter's favour: the rate depreciated to

HK$5.97 on 22nd June, before recovering to HK$5.91 at the end

of the month a level 3.7% lower than at the end of December

1981.

25

/ The