Yip Ka-hay, a former SAC Capital Advisors manager now running his own macro hedge fund, is shorting the euro against the Japanese currency.
The euro may slide below $1.08 in the next few months -- from above $1.13 now -- amid a potential Greek default and exit from the European currency, he said. The yen will likely trade between 121 and 125 to the dollar ahead of another round of quantitative easing from the Bank of Japan toward the end of the year, he said.
Yip, who is running his own $33 million macro hedge fund, chose to short the euro against the yen, a trade which would be more profitable should investors who are now bullish on the U.S. currency start to reduce dollar holdings.
“The market is still expecting a last-minute compromise or extension of talks,” said Hong Kong-based Yip. “The possibility of Greece failing to pay the International Monetary Fund the 1.5 billion euros ($1.7 billion) due June 30 is much higher than what the market is pricing in.”
Greece lurched closer to an exit from the euro after a meeting of finance officials to reach a deal over aid ended in frustration last week. Greek Prime Minister Alexis Tsipras presented a new plan to stave off default before an emergency summit later on Monday.
While neither side wants a Greek exit, Tsipras would likely try to cling onto his political credibility and power instead of yielding to the demands of the European Central Bank, the IMF and the European Commission, Yip said.
“A Grexit is very negative for the euro for the medium term,” said Yip, referring to a potential Greek departure from the euro. “A Grexit will show this currency is just a ‘pegged’ currency in disguise and has the potential to break up any time. For the long term, the status of the euro as a reserve currency will also weaken if one of its members can just be kicked out.”
The euro was the second-largest currency for official foreign exchange reserves in the fourth quarter, according to data from the IMF.
Even with a last-minute deal, the currency shared by 19 nations could weaken as policy makers shift their attention back to boosting growth and inflation in Europe through government easing, he added.
Yip was the first Asia-based manager hired by billionaire investor Steven A. Cohen’s hedge fund in 2007. The macro hedge fund managed by Yip’s own Bright Stream Capital Management returned 7.3 percent this year through May after trading started in January as a managed account. It gained 2.4 percent in May.
For more, read this QuickTake: Common Currency's Existential Crisis