HKMA Intervention - Learning from the Fixed Exchange Rate

Looking back at the HKMA's interventions to defend the peg has been a consistent, albeit sometimes painful, lesson for me. My mistake wasn't necessarily betting against the peg long-term, but misjudging the timing and force of their actions.

I remember back in 2018-2019, seeing the widening spread between HIBOR and LIBOR, the capital outflows, and thinking, "This is it, they can't sustain it." I built up a short position in the HKD, anticipating a move similar to what we've seen in other emerging markets with pegs under pressure. What I underestimated was the sheer volume of reserves the HKMA had, and their absolute commitment to maintaining the 7.75-7.85 range. Each time the currency nudged towards the weaker end, they were there, soaking up liquidity, effectively making it very expensive to stay short.

My position size was too large given the uncertainty and the deep pockets of the central bank. I ended up getting squeezed out multiple times, bleeding capital on carry costs and getting stopped out on small, sharp moves back within the peg's stronger bound. The lesson was clear: don't fight a central bank with unlimited resources, especially when they have a clear, stated policy target and the means to enforce it. It's a game of attrition they are always set up to win. You can identify the pressure points, but timing a break is a fool's errand unless there's a fundamental regime shift.