Just last week, hedge fund legend Bill Ackman announced his brand new idea: he announced his long bet on the Hong Kong Dollar, predicting that Hong Kong’s central bank will decide to relinquish the paper’s peg to the USD in favour of the yuan. Essentially, his reasoning is that he thinks the bank’s best bet to stem inflation — which accelerated to 7.9% in July — is to allow the HKD to appreciate. In his mind, this will happen by 2015.
But here’s the problem: The dollar is now surging, and China is now slowing. If anything, China’s next move will likely be to print more yuan, rather than hike its value. More generally, China could be on the verge of being test in a way that it hasn’t been in the past, making now a particularly dicey time for the Hong Kong Monetary Authority to jump ship.
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