Gibbs retains euro short ahead of 'rapid contraction'

A sharp contraction in the eurozone economy and further ECB intervention could put more pressure on the euro this year, said Philip Gibbs, manager of the £711m Jupiter Absolute Return fund.

Gibbs said he is retaining a short position in the single currency against the dollar, sterling and the Norwegian krone, and said it is difficult to see how the region can move past the debt crisis without either debt monetisation or waiver.

"While steps towards greater fiscal discipline in the EU certainly have some merit over the longer term, the imposition of tougher fiscal targets without addressing other structural deficiencies within the region will likely result in a deep economic contraction," Gibbs said.

The manager believes the dollar, sterling and krone should benefit from the downward pressure placed on the eurozone by that deep contraction, as well as the likelihood of more aggressive ECB intervention.

The fund has an underlying currency exposure of -58% in the euro, versus 21% longs in the dollar and the Norwegian krone.

He also remains short cyclical businesses in Europe, which he said are still not pricing in that kind of economic downturn, with the positions offset by long positions in stock indices.

Gibbs' most significant long positions remain in Australian government debt, which he is using to counterbalance a short in Japanese 10-year government bonds.

"Long positions in Australian government debt should benefit from increased concern about Japan's debt levels in the context of slower global demand," he said.

Jupiter Absolute Return has returned 1.5% over the 12 months to 20 January, versus an IMA Absolute Return sector average loss of 0.7%, according to Morningstar.