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Hong Kong’s Surging Dollar Sends a Warning on the Housing Market

(Bloomberg) — A shock jump in Hong Kong’s currency is signaling a decade-long liquidity party is coming to an end. That may be bad news for the city’s housing market.

The Hong Kong dollar surged as much as 0.6 percent on Friday, its biggest gain in 15 years, and extended gains on Monday. While traders gave differing reasons for the move, the common theme was concern that the city’s borrowing costs will catch up with those in the U.S. as the Federal Reserve continues to hike rates. The chance of local banks raising the so-called prime rate for the first time since 2006 is “extremely high,” Financial Secretary Paul Chan said.

A currency peg with the U.S., open financial borders and a booming economy meant Hong Kong property was one of the greatest beneficiaries of ultra-low lending costs in the wake of the global financial crisis. Home prices rose more than 170 percent in the past decade making the city the world’s least affordable. Citigroup Inc (NYSE:C). and CLSA Ltd. are among those warning of a reversal on expectations that mortgage servicing costs will rise.

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