To avoid those pitfalls, the HKMA may have to keep the actual size of any sterilization operation rather limited, and rely more on the psychological impact of its actions. By sending signals to the market now, it can also influence traders' thinking before deciding whether to make a move.
"The idea that the authorities are going to have to come in ... will have an impact on speculative interest in the Hong Kong dollar," said Tim Condon, an economist at ING in Singapore. "I think traders do look at that as a signal on how to position."
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