Euro 20-Year Trend Review: From a high of $1.6 to a low of 0.95, do investors still have opportunities in the future?

As the world’s second-largest reserve currency, the euro has experienced multiple significant shocks since its circulation began in 2002. From the fluctuations in the US dollar exchange rate triggered by the 2008 financial crisis, to the shadow of the euro debt crisis, and more recently the energy crisis impacts, every wave in the euro exchange rate carries the story of the global economy. This article reviews the key turning points over the past 20 years to help investors understand the logic behind the euro’s movement and to make forecasts for the next five years.

2008: The Long-Term Decline After the Euro Reached 1.6

In July 2008, the euro against the US dollar reached a historic high of 1.6038, then entered a prolonged downtrend. This peak was not accidental but the result of a chain reaction triggered by the US subprime mortgage crisis.

At that time, the situation was as follows: the US financial system collapsed, and European banks were also deeply involved. After Lehman Brothers’ bankruptcy, panic spread in the markets, major financial institutions faced crises, lending froze, and corporate financing became difficult. The eurozone economies contracted, unemployment rose, and tax revenues declined. To combat the crisis, countries launched massive stimulus plans, leading to explosive growth in fiscal deficits and mounting national debt.

This was not the worst part. The crisis exposed the fragility of the euro debt structure—debt issues in countries like Greece, Ireland, Portugal, Spain, and Italy surfaced. Markets began to doubt: could the eurozone survive this ordeal? This distrust directly hit the euro exchange rate. Meanwhile, the European Central Bank was forced to implement quantitative easing and rate cuts, further exerting downward pressure on the euro.

In short, starting from the 1.6 high in 2008, the euro entered a 9-year bear market.

2017: Bottom Rebound and a Turning Point for the Euro

In January 2017, the euro against the US dollar rebounded after hitting a low of 0.9340. This bottom was not without reason—the euro was severely oversold. Compared to the 2008 high, the euro had fallen more than 35%, and most negative factors had been exhausted.

What changes occurred in the eurozone at this time?

Economic data began to improve noticeably. The eurozone unemployment rate had fallen below 10% by the end of 2016, and the Purchasing Managers’ Index (PMI) for manufacturing broke above 55, signaling economic recovery. The European Central Bank’s long-term quantitative easing policy was also taking effect, liquidity was ample, and market confidence was restored.

Politically, there were positive developments. In 2017, France and Germany held major elections, with pro-EU candidates winning, weakening populist risks. The Brexit negotiations, though complex, progressed smoothly initially, reducing market uncertainty. Meanwhile, the policies of the new US administration were unclear, prompting some funds to seek safe havens in the euro.

These factors combined made 2017 a rebound year for the euro. The market recognized that the euro debt crisis was over, and the eurozone economy was on the mend.

2018: US Rate Hike Cycle Suppresses the Euro

In February 2018, the euro briefly rose to 1.2556, a level not seen since 2015, but was soon pushed back down. The end of this rebound was driven by the aggressive rate hikes by the Federal Reserve.

In 2018, the Fed continued raising interest rates, strengthening the US dollar index, which directly suppressed non-US currencies led by the euro. During the same period, the eurozone’s economic momentum also weakened—after a 3.1% growth in Q4 2017, the momentum could not be sustained, and manufacturing PMI retreated from high levels. Political instability in Italy (disagreements between the Five Star Movement and the Northern League government) also dampened investor confidence.

As a result, 2018 became a year of adjustment for the euro, with the exchange rate facing downward pressure again.

2022: Russia-Ukraine Crisis Drives Euro to 20-Year Low

In September 2022, the euro against the US dollar fell to 0.9536, hitting a 20-year low. The direct trigger was the Russia-Ukraine war.

Following the outbreak of war, Europe faced an energy crisis. Russian natural gas and oil supplies were restricted, international oil prices soared, and natural gas prices reached extraordinary levels. European companies faced rising costs, inflation surged, and economic prospects darkened. Safe-haven capital flowed into the dollar, putting pressure on the euro.

However, from September onwards, signs of a turnaround appeared:

First, the European Central Bank raised interest rates consecutively in July and September, ending eight years of negative interest rates. This demonstrated the ECB’s firm stance and determination to combat inflation, supporting the euro. Second, energy supply chains began to adjust, with natural gas and oil prices retreating, easing corporate pressures. The intense volatility of the early Ukraine conflict gradually subsided, reducing safe-haven demand. These factors collectively helped the euro rebound from the 0.95 low.

Three Major Insights from 20 Years of US Dollar Exchange Rate Trends

Looking back over these 20 years, three key patterns can be distilled:

Pattern 1: Economic fundamentals determine the long-term direction. The nine-year bear market from 2008 to 2017 was essentially the concentrated release of structural problems accumulated before the euro debt crisis. Once these issues were addressed (through time, reforms, and central bank support), the rebound began.

Pattern 2: Central bank policies are short-term drivers. The Fed’s rate hikes in 2018 pushed the euro down, while the ECB’s rate hikes in 2022 lifted the euro. The relative strength of monetary policy determines short-term trends.

Pattern 3: Global risk events create volatility. Financial crises, the euro debt crisis, the Russia-Ukraine war—each left a deep imprint on the euro. Investors must stay alert to geopolitical and black-swan economic events.

The Next 5 Years: Can Euro Investment Be Profitable?

The answer depends on three variables:

Will the eurozone economy sustain growth?

Current challenges are real: economic growth is near stagnation, aging industries, and geopolitical risks are becoming normalized. The latest manufacturing PMI has fallen below 45, indicating bleak prospects for the next six months. On the other hand, Europe’s investments in green energy transition and technological innovation could become new drivers of medium-term growth.

The relative strength of central bank policies

By the end of 2023, the Fed has hinted at rate cuts, suggesting the dollar’s appreciation cycle may be nearing its end. Historically, after rate cuts, the dollar index usually declines significantly within 3 to 5 years. This is a long-term positive for the euro. In contrast, the ECB has hinted at possible rate cuts but remains cautious, implying euro interest rates will be relatively more attractive.

Will the global economy enter recession?

If the global economy remains resilient, with stable demand for European exports, the euro will have support. Conversely, if a recession or new geopolitical black swans (e.g., worsening Taiwan situation) occur, capital will flow back to the US, and the euro will depreciate.

Preliminary judgment: In the first half of 2024, the euro may be relatively weak, but if the US begins to cut rates as expected and no major financial crises occur, the euro is likely to start an upward trend in the second half. This rally could continue until the European Central Bank also significantly cuts rates. However, if black-swan events happen, safe-haven buying of the dollar will regain dominance.

How Investors Can Participate in Euro Trading

Depending on investment goals and risk tolerance, there are four main approaches:

Bank Forex Accounts: Suitable for long-term holdings but limited flexibility, usually only allowing buying long positions, not shorting.

CFD Platforms: Suitable for medium-short-term traders and small investors, allowing two-way trading with flexible leverage but higher risk.

Brokerage Firms: Some brokers offer forex trading services, positioned between banks and CFDs.

Futures Exchanges: Suitable for professional investors, offering high liquidity but requiring expertise.

Summary: The Practical Logic of Investing in Euros

Whether the euro can be profitable in the next five years is not a simple yes or no. The key is to understand the three main engines driving the euro—economic fundamentals, central bank policies, and global risk events—and to dynamically adjust strategies based on changes in these factors.

In the short term (1-2 years), the euro faces economic weakness and geopolitical pressures, but the start of a US rate-cutting cycle lays the foundation for a rebound. In the medium term (3-5 years), if the European Central Bank can control inflation and gradually return to easing, the euro is expected to find support again.

The final advice is straightforward: closely monitor the policies of the Federal Reserve and the European Central Bank, track economic data such as employment and PMI in the eurozone, and stay alert to geopolitical news. Investing is not gambling but a judgment based on information.