Goldman Closes Out Money-Losing Euro Bet on Stability

Goldman Sachs Group Inc. recommended investors end a money-losing bet that the euro will gain against the dollar as new governments in Italy and Greece failed to calm investor concern that the region’s debt crisis will spread.

Goldman issued a recommendation to buy the euro and sell the dollar on Nov. 11, after Greece swore in a new unity government and Italy made plans for a new administration. The governments so far have not led to a reduction in concern about the region’s sovereign debt crisis and investors should resume selling the 17-nation currency as tension increases, wrote Thomas Stolper, Goldman’s London-based chief foreign-exchange strategist, in a client note.

“We recommended going long euro-dollar on Nov. 11, based on the view that the nomination of ‘technocrat-led’ governments in Italy and Greece could lead to a clear reduction in risk aversion,” Stolper wrote. “This has failed to materialize.”

He said the close of the recommendation translates to a potential loss of about 2.3 percent. Stolper wasn’t immediately available comment.

The euro fell 0.8 percent to $1.34 at 9:40 a.m. in New York. It has fallen 2.6 percent since Nov. 11.

Goldman’s 12-month forecast is for the euro to strengthen to $1.48, Stolper said during a Nov. 11 webcast. The median estimate in a Bloomberg survey of 46 contributors is for the euro to trade at $1.39 at the end of 2012.

Yields on Italian 10-year bonds reached a euro-era record of 7.49 percent Nov. 9 and traded above 7 percent four days since then. The yield climbed as high as 6.99 percent today.

Germany failed to get bids for 35 percent of the 10-year bonds offered for sale today, sending its borrowing costs higher and the euro lower on concern that Europe’s debt crisis is driving investors away from the region.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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