Banks step up stress-testing of Hong Kong dollar peg risk
Flurry of forex options trades makes banks re-evaluate exposures
Banks are stress testing the possibility that Hong Kong’s currency could decouple from the US dollar following a surge in options bets against the peg.
“We have added new de-pegging scenarios so that we have a better idea of what would happen during a de-pegging event and what losses we might be looking at,” says a senior quant within a large European bank. “These are new scenarios because, apart from a few hedge funds, people weren’t really talking about the peg breaking before.”
The Hong
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