Banks step up stress-testing of Hong Kong dollar peg risk

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 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 at 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 Kong dollar