Under the USD-HKD peg, HKD interest rates will track on higher USD rates amid the Fed’s rate hike cycle. Currently interest rate market is pricing in more than 8 Fed’s rate hikes in the rest of this year and HKD interest rates are set to remain under upward pressure. We expect HKD spot to weaken to 7.85 level in H2-22 and the HKD liquidity drainage via HKMA’s FX intervention will take time to narrow HKD-USD rate spread. The US SEC’s warning on delisting Chinese firms from US exchanges sparked the fire-sale of Chinese investment. Despite equities buying flow from mainland China, Hang Seng Index tumbled to its 10-year low of 18,235 level before settling at 22,000 on Chinese leaders’ strong pledge to stabilize financial markets. The 5th wave of Covid spread in HK appears to peak out but the HK economy is not out of the woods yet. HK Financial Secretary Paul Chan predicted further rise in unemployment rate and a contraction in GDP in Q1.