The Hong Kong dollar was trapped at a four-month low on Wednesday, but discounts on forwards rates widened as some players booked profits after recent sharp moves. The local currency was trading at 7.7998/99 per US dollar little changed from 7.7999/7.80 in late Asian trade on Tuesday although it did touch the peg at one point.

Recent weakness in the Hong Kong dollar has been driven mainly by arbitrage trades, dealers said.

Over the past two days, the Hong Kong Monetary Authority (HKMA) has bought a total of HK$4.953 billion in exchange for US dollars from banks in offshore trade. Under the currency board system, the territory's de facto central bank is committed to defending the pegged rate of HK$7.80 by buying Hong Kong dollars in exchange for each US dollars.

Copyright Reuters, 2005