The euro will fall about 5 percent against the dollar in the next three months amid political turmoil in Europe and a likely U.S. interest-rate increase, said Ka-hay Yip, a former SAC Capital Advisors manager now running his own macro hedge fund.
Yip predicts the common currency will depreciate to $1.05, from almost $1.10 in Asian trading Wednesday. His Hong Kong-based Bright Stream Capital Management, which oversees a $33 million hedge fund, is holding onto bets against the euro versus both the yen and the greenback.
European leaders set a Sunday deadline for Greece to accept a rescue, or they would take unprecedented step of propelling the country out of the euro after Greek voters over the weekend rejected further austerity demands by its creditors. Ousting Greece would show the euro to be no more than a pegged currency in disguise and weaken its status as an international reserve currency, Yip said in an interview last month.
The shared currency has dropped more than 1 percent since July 3 and the benchmark Stoxx Europe 600 Index has declined 2.8 percent. Morgan Stanley economists put the odds of Greece’s ouster from the euro area at 75 percent.
“The market is not really pricing in a messy Grexit,” said Yip in an interview this week, using the shorthand for Greece’s expulsion from the now 19-nation currency area. “The Federal Reserve is still focusing on the domestic strength of the U.S. economy and is on track to hike in September regardless of the turmoil in Europe.”
European leaders would be wary that a softening stance on Greece would embolden anti-austerity sentiment in other peripheral countries going through tough reforms, he added.
“Regardless of when and if a deal will come through, the process will take time and uncertainty will weigh on the credit and equity markets” as investors exercise caution, Yip said.
The euro has dropped 2.7 percent against the greenback in the past month and more than 4.6 percent against the yen.
Yip was the first Asia-based manager hired by billionaire Steven A. Cohen’s SAC in 2007.