By Paul Dobson and Daniel Tilles
Nov. 25 (Bloomberg) -- Goldman Sachs Group Inc. said an unanticipated worsening of the euro-region debt crisis would mean its euro-dollar predictions are too bullish.
?We?d need to see a significant increase in systemic risks to do forecast changes,? Thomas Stolper, an economist at the bank, said today in an interview from Stockholm. The crisis ?won?t spread much beyond Ireland and Portugal. We have been assuming that both will ask for assistance. These countries are small enough to not cause systemic stress.?
Bond yields from nations including Ireland, Portugal and Spain reached records relative to German bunds this month on concern contagion from the euro-region debt crisis is spreading. European Central Bank council member Axel Weber said yesterday that governments can increase the size of the European Union-led bailout fund if necessary to restore confidence in the euro.
?Overall, we believe euro-dollar remains very much on track for the projected trajectory of $1.40 in three months as well as $1.50 and $1.55 in six and 12 months,? Stolper wrote today in an e-mailed report. ?Even a dip below euro-$1.30 would still be in line with the related risk scenarios discussed in recent months. We clearly assume that fiscal tensions don?t escalate much further, otherwise our bullish euro-dollar projections would be too optimistic.?
The euro was 0.1 percent weaker at $1.3335 as of 1:03 p.m. in London, down 2.6 percent this week. The 16-nation currency is 7 percent lower against the dollar this year.
?Spain will not need a bailout,? Stolper said in the interview. ?If the probability of a more disruptive event rises we will have to reconsider our view. I wouldn?t see this as preparation for a forecast change. This may be an opportunity to position for longer-dated dollar weakness.?
--Editors: Mark McCord, Peter Branton.
To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Daniel Tilles at dtilles@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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