Because Hong Kong’s currency is pegged to the US dollar, a weaker US currency would also weaken the local currency, making imports more expensive and driving up inflation, said Kai Wang, a market strategist at Morningstar, on Monday.
“This would [make it] hard for the banks to lower interest rates, thereby driving down rental yields and making it harder to borrow to buy property, thus lowering property values,” he said. This in turn could impact the stock market.
In a report published over the weekend, US investment bank Morgan Stanley said it expected the US dollar to weaken over the next 12 months to a level last seen nearly four years ago.
The US dollar index (DXY), which measures the currency against a basket of six others, was expected to decline to 91 by mid next year – a level last seen on June 16, 2021, Morgan Stanley said.
“[The US dollar] has bucked consensus in 2025 and had its worst year-to-date performance in over two decades,” the bank said. The currency started to weaken in mid-January and recorded some of its steepest declines since President Donald Trump imposed hefty tariffs on China and other trading partners, sending investors to seek cover with other assets. On Monday, the DXY was at 99, a level last seen in April 2022.
