Hong Kong’s currency peg system operated without stress through Q4 2025, with the Hong Kong dollar trading in a tight band of 7.7673 to 7.7900 against the greenback, according to minutes from the HKMA’s Currency Board Sub-Committee meeting held January 12.

The Monetary Base expanded to HK$2,040.65 billion by late December, with all changes fully backed by foreign reserves under Currency Board rules. The Aggregate Balance—a key liquidity indicator watched by FX traders—held steady around HK$54 billion, and the HKMA’s Convertibility Undertakings weren’t triggered during the period.

Rate Dynamics Mirror Fed Moves

HIBOR rates tracked their USD counterparts as expected under the Linked Exchange Rate System, though local funding conditions added some volatility. Interbank rates softened through October and November on equity-related demand before seasonal pressures pushed them higher into year-end.

Following the Fed’s Q4 rate cuts, Hong Kong banks trimmed Best Lending Rates by 12.5 basis points in early November. They held steady in December, leaving market rates between 5.000% and 5.500% at period end.

Macro Backdrop Shows Mixed Signals

The Sub-Committee flagged several risk factors worth monitoring. U.S. markets got temporary relief from trade truces and the government reopening, but “K-shaped” consumption patterns, AI boom sustainability questions, and labor market weakness remain concerns.

Mainland China’s growth moderated in October-November 2025, though the recent U.S.-China trade truce should ease near-term export pressure. Beijing’s 15th Five-Year Plan (2026-2030) will prioritize technological self-reliance and domestic consumption.

Hong Kong’s own economy grew through Q4, driven by merchandise exports and stabilizing retail sales. The housing market showed further recovery as financial conditions eased, though commercial real estate still struggles with elevated vacancy rates.

What Traders Should Watch

The Exchange Fund’s total assets stood at HK$4,151.4 billion as of December 31, 2025, providing substantial backing for the currency peg. With the HKMA projecting moderate 2026 growth supported by tech demand and improved sentiment from eased trade tensions, the HKD looks set to remain well-anchored.

For crypto traders with HKD exposure or those watching Asian liquidity conditions, the stable Aggregate Balance suggests no imminent funding stress that might spill into digital asset markets. The next Currency Board review covering January-March 2026 data should arrive in May.

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