Insights into investment opportunities from the 20-year euro exchange rate trend: How three turning points reshaped the market landscape

As the world’s second-largest reserve currency, the euro has been in circulation for over 20 years since its official launch in 2002, enduring multiple economic cycles. From the intense fluctuations during the 2008 financial crisis, through the ongoing impact of the euro debt crisis, to recent challenges posed by the Russia-Ukraine war and energy crisis, the euro’s exchange rate trajectory over two decades reflects global economic ups and downs. This article will analyze three key turning points to systematically review the evolution of the euro’s exchange rate and provide investment insights for the next five years.

The First Decade: A Long Decline from the Financial Crisis to the Euro Debt Crisis

July 2008: The Peak — The Euro’s Highest Moment

In July 2008, the euro-to-dollar exchange rate hit a historic high of 1.6038. At that time, the US subprime mortgage crisis was erupting fully, causing severe turbulence in global financial markets.

Why did the peak coincide with a crisis? Europe’s economy was relatively stable then, and investors were optimistic about the eurozone’s prospects, leading to capital inflows into euro assets. However, this peak marked a critical point signaling the onset of crisis.

How did the crisis sweep through the eurozone?

The impact of the 2008 financial tsunami on the euro was far greater than surface perceptions. European banks were extensively exposed to US subprime derivatives, causing large asset devaluations and rapid credit chain breakdowns among major multinational banks. Globally, credit tightened sharply, banks became reluctant to lend, and financing for eurozone companies and consumers became difficult, stalling economic growth.

In response, the European Central Bank (ECB) launched historic rate cuts and quantitative easing measures in late 2008. While these measures stabilized financial markets, they also exerted downward pressure on the euro—low interest rates attracted capital back to the US seeking higher yields.

Deeper threats emerged within Europe itself. Post-crisis, fiscal deficits soared, and sovereign debt accumulated rapidly. Countries like Greece, Ireland, Portugal, Spain, and Italy faced debt crises, raising doubts about the eurozone’s sustainability. Consequently, the euro’s exchange rate entered a prolonged downtrend.

The Second Decade: Bottoming Out and Seeking a New Balance

January 2017: The Low Point — End of Nearly a Decade of Decline

After nearly nine years of continuous decline, the euro-to-dollar rate fell to 1.034 in January 2017, the lowest in this century. Compared to the 2008 high, the euro had depreciated over 35%.

But this low marked an important turning point.

First, the real threat of the euro debt crisis had largely abated. Greece had undergone multiple bailouts and gradually regained access to financing; Spain and Portugal also showed signs of recovery. The ECB’s long-term easing policies began to take effect—manufacturing PMI broke above 55, unemployment fell below 10%, and economic data improved across the board.

Second, political uncertainties eased. In early 2017, Brexit negotiations commenced, with both sides seeking agreements, reducing worst-case fears of Brexit’s economic impact. Meanwhile, upcoming elections in France and Germany favored pro-EU parties, boosting confidence in the eurozone.

More critically, the new US administration’s policy uncertainties prompted some capital to flow into relatively safe euro assets, providing a counterbalance to dollar strength.

February 2018: The Rebound High — Short-term Optimism

In February 2018, the euro-to-dollar rate rose to 1.2556, a three-year high, reflecting renewed market confidence in Europe’s economy.

However, this rally was short-lived due to several factors:

US policy shift: The Federal Reserve accelerated rate hikes in 2018, strengthening the dollar and exerting pressure on other currencies.

European growth momentum waned: After peaking at 3.1% in Q4 2017, growth slowed, with manufacturing PMI retreating from high levels above 60, indicating weakening momentum.

Political risks surfaced: The formation of coalition governments in Italy (Five Star Movement and League) raised concerns over fiscal policies. As the eurozone’s third-largest economy, Italy’s instability directly dented investor confidence.

Subsequently, the euro entered a consolidation phase.

September 2022: New Lows — Energy Crisis and Russia-Ukraine War

In September 2022, the euro plunged to 0.9536, a 20-year low. This decline had a different background:

Following the outbreak of the Russia-Ukraine war, Europe’s energy supply was severely disrupted. Natural gas and oil prices soared, pushing energy costs to historic highs, severely impacting manufacturing and household budgets. The energy crisis drove inflation higher, forcing the ECB into a dilemma—raising interest rates risks deepening recession, while not raising them risks runaway inflation.

Market risk aversion increased, with capital flowing into the safe haven dollar.

But a turning point also emerged:

In July and September 2022, the ECB began raising interest rates, ending eight years of negative rates. This historic shift signaled the ECB’s resolve to combat inflation and aligned its stance more closely with the Fed.

As energy supplies gradually stabilized, natural gas and oil prices fell sharply in the second half of 2022, easing Europe’s energy crisis and reducing recession fears. The euro began to rebound.

The Outlook for 2026: Current Assessment of the Euro’s Exchange Rate

By early 2026, the euro has entered a new equilibrium phase. Compared to the past 20 years of volatility, the market is now seeking a new balance.

Divergence in central bank policies: After the Fed began easing in late 2023, the ECB maintained relatively cautious stance with higher interest rates to address structural inflation. This policy divergence supports the dollar short-term, but in the longer run, the dollar index tends to decline 3-5 years after rate cuts begin, which could be bullish for the euro.

Economic fundamentals: Eurozone growth remains sluggish, with manufacturing PMI oscillating below expansion levels, indicating weak economic vitality. Geopolitical risks—ongoing Russia-Ukraine conflict, Middle East tensions, transatlantic policy disagreements—continue to impact market confidence.

Structural issues remain unresolved: Population aging, labor shortages, and sluggish productivity growth limit long-term euro appreciation potential.

Five-Year Outlook: Who Will Lead the Euro’s Exchange Rate?

Factors Supporting the Euro

1. Gradual policy normalization: As the Fed continues easing, the ECB’s relatively high interest rates will attract yield-seeking capital into euro assets.

2. Technical support at low levels: The euro has rebounded from around 0.95, with multiple technical support levels established, making a sharp decline below these less likely in the near term.

3. Recovery in global risk appetite: If global recession fears subside, risk-on flows could benefit Europe’s export-driven economy, supporting euro appreciation.

Factors Limiting the Euro

1. Weak internal growth drivers: The eurozone lacks high-growth engines like emerging markets, making sustained capital inflows difficult.

2. Recurrent geopolitical shocks: New crises could trigger capital flight back to the US, reversing euro gains swiftly.

3. Internal political divergences: Disagreements among eurozone members on fiscal, immigration, and China policies could escalate into political risks.

Most Probable Scenario

Combining these factors, the next five years are likely to see the euro fluctuate within a range, gradually trending upward. In an optimistic scenario (global soft landing, dollar weakening), the euro could push toward 1.15–1.20. In a pessimistic scenario (new financial crisis, geopolitical escalation), it might fall back toward 0.90.

The most probable outcome is a narrow range of 1.00–1.10, occasionally breaking above 1.15 but struggling to sustain beyond 1.20.

Five Major Euro Investment Strategies Compared

For investors interested in euro exposure, the main options currently include:

Strategy 1: Bank Forex Accounts

Open foreign exchange accounts via Taiwanese or international banks for currency trading. Advantages: safety, transparency. Disadvantages: limited options (mainly long positions), leverage restrictions, wider spreads. Suitable for conservative investors with large capital and low risk appetite.

Strategy 2: CFD Trading Platforms

Trade CFDs through international brokers. Advantages: flexible leverage, two-way trading, low costs. Disadvantages: higher risk, platform selection matters. Suitable for those with basic forex knowledge and moderate risk tolerance.

Strategy 3: Securities Firm Forex Services

Some Taiwanese securities firms offer forex trading via designated platforms. Advantages: regulated, transparent. Disadvantages: limited product variety, trading hours restricted.

Strategy 4: Futures Exchanges

Trade euro futures on futures exchanges. Advantages: standardized contracts, transparent pricing, fixed leverage. Disadvantages: less flexible contracts, lower liquidity. Suitable for experienced futures traders.

Strategy 5: Physical Euros or Travel Checks

The most conservative approach—holding physical euros or travel checks for long-term holding or emergencies. Disadvantages: high costs (exchange fees, storage), zero yield.

Final Recommendations

Reflecting on the 20-year euro trajectory, three core insights emerge:

1. Macro fundamentals are not everything. In 2008, the euro peaked amid optimistic outlooks, only to decline for a decade. Conversely, in early 2017, many investors were bearish at the low point, yet the euro rebounded afterward.

2. Policy shifts often precede market expectations. The ECB’s decisive rate hikes in late 2022 signaled a bottoming process. Investors should closely monitor central bank language rather than be swayed solely by current sentiment.

3. Geopolitical risks have become the new normal. Over the past two decades, external shocks—from financial crises to wars—have driven euro fluctuations. Over the next five years, geopolitical risks must be integrated into investment decisions.

For medium-term investors, establishing euro positions within the 1.00–1.10 range appears relatively safe, with targets around 1.15–1.20. Setting stop-losses near 0.95 is prudent to hedge against unexpected geopolitical black swan events.

The key to euro investment is not predicting exact highs or lows but understanding the underlying drivers and seizing cyclical opportunities within manageable risk parameters.