Twenty years of Euro historical exchange rate fluctuations revealed, here's how to view future investments correctly

Opening: First Look at Trends, Then Discuss the Future

As the world’s second-largest reserve currency, the euro has been in circulation for over twenty years since its official launch in 2002. During this period, Europe has experienced the 2008 subprime mortgage crisis, the subsequent Eurozone debt crisis, and recent pandemics and geopolitical shocks. Each crisis has left a deep mark on the euro exchange rate. To assess whether the euro is a worthwhile investment over the next five years, we must first understand what has happened in the past and the underlying economic logic.

Three Key Moments in the Euro Exchange Rate History

July 2008: Peak Exchange Rate and the Impact of the Financial Tsunami

The euro against the US dollar once reached a historic high of 1.6038 before peaking and declining.

At that time, the US subprime mortgage crisis was intensifying, causing a chain reaction in the financial system. European banks were also in trouble—assets plummeted, especially those holding large amounts of subprime derivatives. After Lehman Brothers collapsed, counterparty risks surged, and global credit markets froze instantly.

European companies and consumers faced financing difficulties—investment and consumption both declined, leading to an economic recession. To stabilize the situation, the European Central Bank launched aggressive quantitative easing and interest rate cuts. While these measures provided liquidity support, they also contributed to euro depreciation.

Worse still, the crisis exposed structural weaknesses in the Eurozone. Debt issues in Greece, Ireland, Portugal, and other countries surfaced, causing markets to question the sustainability of the euro system. Safe-haven funds flowed back to the US.

Early 2017: Turning Point from Bottom Rebound

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.

By 2017, the shadow of the Eurozone debt crisis had largely dissipated. The long-term easing policies previously implemented by the European Central Bank began to take effect. The Eurozone’s unemployment rate successfully fell below 10%, and the Manufacturing Purchasing Managers’ Index (PMI) broke through 55, signaling economic recovery.

Meanwhile, after Brexit negotiations began, market expectations remained relatively stable. The French and German elections did not trigger anti-euro waves; instead, they reinforced confidence in European integration. In contrast, policy uncertainties under the Trump administration in the US prompted some capital to shift toward relatively safe European assets.

Additionally, the euro, after more than thirty years of significant decline, had become severely undervalued. Negative factors had been largely digested, laying a solid foundation for a technical rebound.

September 2022: 20-Year Low and Policy Shift

The euro against the US dollar once fell to 0.9536, hitting a 20-year low, then gradually rebounded.

Following the Russia-Ukraine conflict, Europe faced an energy crisis, with natural gas and oil prices soaring, and inflation rising rapidly. The European Central Bank was forced to raise interest rates consecutively in July and September 2022, ending an eight-year era of negative interest rates. As the conflict stabilized and global energy supply chains adjusted, European energy prices began to fall from the second half of the year, easing corporate operating pressures and gradually dispelling market pessimism.

Deep Logic Behind the Euro Exchange Rate Movements

Analyzing these two decades of fluctuations reveals several common themes:

Central Bank Policy Orientation: The ECB’s easing cycles often correspond with euro depreciation, while rate hikes or normalization provide exchange rate support.

Economic Fundamentals: Indicators such as declining unemployment and rising manufacturing PMI boost investor confidence in the euro. Conversely, economic slowdown or recession risks trigger sell-offs.

Global Risk Aversion: Geopolitical crises, US dollar rate hike expectations, and other factors tend to drive capital back to the US, putting pressure on the euro.

Relative Value: The interest rate differential between the euro and the dollar is crucial. When US yields are significantly higher than euro yields, arbitrage trading intensifies euro depreciation pressure.

The Next Five Years: Opportunities and Risks in Euro Investment

Growth Ceiling

The eurozone faces long-term challenges such as aging industries and unfavorable demographic structures. Recently, manufacturing PMI fell below 45, reflecting a pessimistic economic outlook. Without major structural reforms, economic growth is likely to remain sluggish, providing little positive support for the euro exchange rate.

Policy Shift of Central Banks

By the end of 2023, the Federal Reserve hinted at the start of a rate-cutting cycle, while the ECB remains cautious about rate cuts. In the short term, euro interest rates are below those of the US, but the ECB’s relatively hawkish stance helps keep the euro resilient. Historically, each US rate-cut cycle tends to lower the dollar index over three to five years, which is a bullish factor for the euro.

Global Economic Uncertainty

If global growth remains weak, demand for European goods will decline, and capital will continue to flow back to the US. Conversely, if the global economy unexpectedly recovers and emerging markets’ risk assets regain favor, the euro could benefit from rising risk appetite.

How Taiwanese Investors Can Participate in Euro Investment

Bank Forex Accounts

Open foreign exchange accounts through Taiwanese commercial banks for trading. The advantages are high security; the disadvantages include limited trading flexibility, mostly supporting only buy operations.

Forex Broker Platforms

International forex brokers offer leverage trading and two-way operations, suitable for hedging and short-term investors. However, careful selection of compliant platforms is essential.

Securities Company Services

Some local securities firms provide forex trading services, with relatively convenient processes, but product options may be limited.

Futures Market

Forex contracts on futures exchanges offer standardized trading and comprehensive risk management tools, suitable for experienced investors.

Conclusion: Keys to Successful Euro Investment

Comprehensive analysis suggests that the euro may weaken in the first half of 2024. However, once the Fed begins to cut rates and no major financial crises occur globally, the euro is likely to enter a new upward phase, continuing until the ECB significantly cuts rates. If geopolitical tensions worsen further or trigger a new wave of financial crises, safe-haven capital will flow back into the dollar, which would be a clear negative for the euro.

Investors should closely monitor economic data releases, central bank decisions, and major political events in the US and Eurozone to judge the overall economic trend and adjust their investment positions accordingly. The history of euro exchange rate fluctuations has shown that there is no eternal one-way trend—only through deep understanding of fundamentals and cautious risk management can one remain undefeated in this long-term currency game.