Why Had The HKD Weakened Recently?

Hong Kong’s dollar aka HKD has been cause for concern in recent weeks. The currency, pegged to the U.S. dollar since 1983, is managed by an Exchange Fund. But unlike the U.S. Fed, the Exchange Fund has stayed on the sidelines and Hong Kong banks have maintained rates in a hot property market, causing an interest rate differential.

The currency has hit a 15-month low and, according to Bloomberg, and declined at its fastest pace in over a year. A serious worry now is its potential consequences for stocks, with some believing the floor rate of HK$7.80 per U.S. dollar could cause investors to flee.

Not so soon, says UBS. The Swiss bank believes the embattled currency is still within...