The Hong Kong dollar shed early gains and edged back towards its linked exchange rate to the US currency late on Wednesday, but trading was cautious ahead of comments from Federal Reserve Chairman Alan Greenspan. The local currency weakened to 7.7998/99 against the greenback from 7.7996/97 in late Asian trade on Tuesday. It inched higher and Hong Kong dollar forwards discounts widened earlier in the day in reaction to the overnight weakness in the US dollar in New York trade. Dealers said the local currency had firmed to 7.7985 in offshore trade on Tuesday.

They also said the local currency was likely to remain under selling pressure. Further declines in interbank liquidity are likely on receding expectations of an imminent yuan revaluation and on the prospect of higher US interest rates.

Copyright Reuters, 2005