For some reason Goldman Sachs (NYSE:GS) felt the euro would rebound against the U.S. dollar in light of the sovereign debt crisis which continues in Europe. They were wrong, and after getting clobbered on the play, have finally left their position in the currency.
Interestingly, just when they were doing that the euro has risen from a 10-month low against the dollar today on the news Europe may finally make a decision on helping prop up Greece.
The Greece sovereign debt debacle revealed the weak underside of the euro, which caused it to plunge as investors have been watching the EU waffle on promises to help them out, which drew attention to how the euro would be affected by that indecision.’
“We have clearly underestimated the impact on the euro from the European sovereign crisis and perhaps also from the broader macroadjustment that it portends,” five Goldman analysts wrote in an e-mail to Bloomberg News today. “These political headwinds currently matter far more for the euro than the cyclical factors.”
With all that brainpower at Goldman, it’s hard to identify with what they were thinking or thought they saw that contradicted the weakness of the euro.
When taking into consideration Portugal, Ireland, Italy and Spain are also considered high-risk debt countries, with Portugal being downgraded just yesterday for the debt it holds by Fitch Rating, it didn’t really make a lot of sense why Goldman thought it would go higher, unless they were simply making a contrarian move in hopes it would buck the trend.
The aid to Greece has been fiercely battled over behind closed doors by European Union countries, and the fact a little bit of it has spilled out into the media shows how deep the differences have been.
The euro moved up today also because of the announcement by European Central Bank President Jean-Claude Trichet that the Bank will extend emergency collateral rules beyond this year, helping increase the chances Greece will be able to pay its debt obligations if the credit-rating of the country is downgraded. Greece needs to sell about $13 billion in bonds in order to do that over the next several weeks.
