Euro to HKD exchange rate evolution over 20 years: From historical highs to today's lows, is there still a chance in the future?

As the world’s second-largest reserve currency, the euro has experienced several significant market turning points since its official circulation began in 2002. From the 2008 financial crisis, the subsequent eurozone debt crisis, to recent pandemics and geopolitical upheavals, each event has left a clear mark on the euro exchange rate trend. This article will review key moments over the past 20 years of the euro against the US dollar and the Hong Kong dollar, and assess investment opportunities for the next five years.

Historical Review: Three Major Milestones of the Euro Exchange Rate

July 2008 — The Peak of the Financial Crisis

The euro against the US dollar reached a historic high of 1.6038 in July 2008. However, with the full outbreak of the US subprime mortgage crisis, this peak became a signal of reversal.

The impact was not limited to the financial sector. Major European banks held large amounts of assets related to US subprime loans. As these assets’ values collapsed, credit risks rapidly spread across the European financial system. Banks’ reluctance to lend led to financing difficulties for businesses and consumers, causing economic activity to stall. Many eurozone countries were forced to implement stimulus plans, with fiscal deficits soaring. The European Central Bank (ECB) launched quantitative easing, further weakening the euro’s attractiveness.

Adding to the woes, shortly after the financial crisis, debt issues in countries like Greece, Ireland, Portugal, Spain, and Italy surfaced, raising doubts about the sustainability of the eurozone.

January 2017 — The Beginning of Reversal

After nearly nine years of decline, the euro against the US dollar hit a low of 1.034 in January 2017, then began to rebound. Several key drivers behind this turning point include:

The European Central Bank’s long-term easing policies finally started to show effects. Unemployment fell from 10% at the end of 2016 to lower levels, manufacturing Purchasing Managers’ Index (PMI) broke through 55, and economic data improvements rekindled market confidence. Meanwhile, the 2017 elections in France and Germany were generally viewed favorably for pro-European political tendencies, and Brexit negotiations initially appeared relatively moderate, reducing market uncertainty.

Additionally, policy uncertainties from the new US administration caused global investors to doubt the dollar’s outlook, prompting some capital to shift into euro assets. After years of overselling, the euro also became attractive on valuation grounds.

September 2022 — 20-Year Low

The euro against the US dollar fell to 0.9536 in September 2022, marking a 20-year low. The Russia-Ukraine war disrupted global energy patterns, causing soaring natural gas and oil prices in Europe, which fueled inflation and sharply increased corporate costs. Concerns about recession grew, and the US dollar, as a safe-haven asset, attracted substantial capital inflows.

The turning point came in the second half of 2022. Energy supply chains gradually adjusted, easing price pressures; the ECB decisively raised interest rates, ending an eight-year era of negative rates, which supported the euro. During the same period, the euro against the HKD also hit new lows, reflecting structural challenges faced by the eurozone.

The Next Five Years: Can the Euro Still Rise?

Economic Growth Outlook Becomes Cautious

The eurozone’s economic momentum is relatively limited. Although unemployment continues to improve, economic growth rates are near zero, with aging industrial bases and normalized geopolitical risks putting pressure on market confidence. Recently, manufacturing PMI fell below 45, indicating potential economic challenges in the coming half-year.

Monetary Policy Becomes a Key Variable

This is one of the few factors supporting the euro. The US Federal Reserve signaled a rate cut by the end of 2023, while the ECB remains cautious about ending its rate hike cycle. Although euro interest rates are still below US rates, the relatively higher interest environment provides support for the euro.

Historical experience shows that when the US enters a rate-cut cycle, the US dollar index often declines significantly within 3 to 5 years, which is long-term positive for the euro.

Global Economic Uncertainty

If the global economy remains resilient, demand for European goods will support euro appreciation; conversely, a global recession could lead to capital flowing back into the US, depressing the euro. Increased geopolitical uncertainties also make this forecast more complex.

Four Ways for Taiwanese Investors to Invest in Euros

Method 1: Bank Forex Investment
Open a forex account with a Taiwanese bank for trading. Advantages include safety and reliability; disadvantages include possible capital limits, usually allowing only one-way long positions.

Method 2: Forex Brokers (CFD Platforms)
International forex brokers offer more flexible trading options, suitable for small investors and short-term traders, allowing two-way trading.

Method 3: Securities Firms
Some Taiwanese securities firms provide forex trading services, integrating forex investment with stock trading on one platform.

Method 4: Futures Trading
Trade forex futures through futures exchanges, suitable for investors with some experience.

Investment Advice and Outlook

Considering macro factors, the euro may face downward pressure in the first half of 2024. However, if the US initiates a timely rate cut and no major financial crises occur, the euro is likely to regain upward momentum in the second half, until the ECB significantly cuts rates. Cross pairs like EUR/HKD will benefit accordingly.

Risks also warrant caution: any major geopolitical event could trigger capital flows into the US dollar, putting pressure on the euro.

Investors should closely monitor economic data releases, central bank policy movements, and geopolitical news from the US and eurozone to adjust their strategies promptly.

Three simple steps to start your investment journey:

1. Register — Fill out your information and submit your application
2. Deposit — Quickly fund your account through various methods
3. Trade — Discover opportunities and place orders swiftly