Bill Ackman Exposes A “Significant” Short Position Against The Hong Kong Dollar

Bill Ackman, a forex activist, and investor claimed this Thursday about his hedge fund ‘Pershing Square’ having taken a short position against the Hong Kong dollar. He further added that the HKD’s peg to the dollar will soon come to an end.

Ackman also added that a “large national short positions is adopted by the ‘Pershing Square’, via the put options’ possession for the Hong Kong dollar.

According to Ackman in a time when the USD is dipping further, moving forward the peg between HKD and USD does not yield any benefits to Hong Kong and will break soon.

Ackman stated in a tweet in response to a Bloomberg piece outlining the mounting pressure on the Hong Kong currency’s peg to the US dollar.

Bill Ackman Also Criticized Yuan and Dollar Peg

The Pershing Square CEO also lambasted the Chinese yuan and U.S. dollar peg.

“In the wake of US and China turmoil in recent years, it is surprisingly awkward for China to keep the HK dollar pegged to the US dollar.

The Chinese yuan and the Hong Kong dollar are both restricted to trading within a certain range against the US dollar.

If the 2 currencies go outside of the range, Hong Kong and Chinese authorities will intervene in international currency markets.

The People’s Bank of China Only Daily Basis Sets Range of Yuan

The Chinese authorities quite often set the trading range for Yuan to achieve a competitive advantage. However, this makes the Chinese Yuan a highly volatile currency.

But the Hong Kong dollar since 1983, has been tied to the US dollar and allowed only to trade within a limited range of 7.75 to 7.85 against the U.S dollar.

However, keeping peg of the Hong Kong dollar has been an expensive affair in these past years, with an increasing number of traders abandoning the city’s currency amid a widening interest rate differential with the rest of the globe.

HKMA Might Not Be Able to Maintain This Peg By Force For Too Long

Over the past several years The Hong Kong Monetary Authority (HKMA) was compelled to maintain accommodating monetary conditions earlier this year to assist tide the city’s economy through its biggest COVID-19 epidemic ever, which halted the activity.

Many news channels have reported that HKMA spent almost over HK$238 billion ($1= HK$7.8164) this year to maintain HKD’s peg to the USD- higher than it had spent during the 1997 Asian Financial Crisis.

As the result, Hong Kong’s federal bank has suffered a 15% decline in the country’s foreign exchange reserves.

That’s why Ackman and many others are calling the shots that this peg might not last any longer.