• Bill Ackman said on Wednesday that he’s betting against the Hong Kong dollar.
  • The billionaire investor thinks the Fed’s rate rises will break the currency’s peg to the dollar.
  • “The peg no longer makes sense for Hong Kong and it is only a matter of time before it breaks.”

Bill Ackman is shorting the Hong Kong dollar in a bet it will eventually break its peg to the US dollar as the Federal Reserve’s tightening campaign continues.

“We have a large notional short position against the Hong Kong dollar through the ownership of put options,” the billionaire investor tweeted on Wednesday. “The peg no longer makes sense for Hong Kong and it is only a matter of time before it breaks.”

Hong Kong’s currency has had its value fixed at between 7.75 and 7.85 per dollar for nearly 40 years, but the peg has come under pressure as the Fed hikes interest rates aggressively in a bid to tame US inflation.

Rising interest rates tend to attract investors seeking higher yields, which pushes the dollar higher and leads to a fall in the value of any currency measured against it.

That’s fueled what economists call a “reverse currency war”, where central bankers raise interest rates in lockstep with the Fed to fight inflation and surging import costs.

Hong Kong’s Monetary Authority maintains a peg to the dollar by matching the Fed’s rate rises, but that tightening will hit growth at a time when zero-COVID lockdowns and a debt crisis are already hammering China’s economy.

The country’s finance minister has previously warned investors not to bet against the currency’s peg.

“If you bet against the Hong Kong dollar, you are bound to lose,” Paul Chan told an investment summit earlier this month.

Read more: Decades-high inflation has triggered a “reverse currency war” as a soaring dollar leaves central banks scrambling to catch up