White House aides are considering undermining the Hong Kong dollar's peg to the greenback as part of efforts to punish China over its new security law in the city, a report said Wednesday. Bloomberg News said the idea from some officials to put a strain on the 37-year-old peg -- possibly by limiting local banks' access to US dollars -- was one of a number of measures flagged as Washington looks at ways to respond to the controversial law. Other measures being discussed included cancelling a US-Hong Kong extradition treaty and no longer cooperating with the city's police force, Bloomberg said.
Hong Kong's currency is pegged to the greenback at a tight range of 7.75-7.85 per dollar and the city's monetary policy moves in lock-step with the United States. The Hong Kong Monetary Authority said on Thursday that the U.S. Federal Reserve's overnight decision to keep the policy rate unchanged was expected by the market, and that Hong Kong's foreign exchange and money markets continue to operate smoothly. Some analysts had attributed Hong Kong dollar gains earlier in the week to the unwinding of bets previously profiting from 'carry trades' - borrowing with low interest rates in Hong Kong to purchase U.S. dollar assets.