The 20-year epic journey of the euro: from historic highs to lows, are there still investment opportunities in the future?

As a key player in the international reserve currency system, the euro has experienced several major tests since its inception in 2002. From reaching a historic high in 2008, to a prolonged decline spanning over a decade, and more recently, the shocks brought by the energy crisis, each fluctuation reveals underlying economic logic. This article reviews the key moments over twenty years of the euro to explore how investors can find opportunities amid turbulence.

How the Euro Went from Glory to Low: A Decade of Decline from 2008-2017

The Peak in 2008 and the Subsequent Collapse

In July 2008, the euro against the US dollar hit a record of 1.6038. This figure represented Europe’s strongest moment on the global stage but also marked the beginning of a turning point.

The outbreak of the US subprime mortgage crisis shattered the calm of global financial markets. When Lehman Brothers collapsed, it became clear that this was not just a US problem. The extensive links between European banking systems and US financial institutions caused risks to cross the Atlantic rapidly. Credit markets froze instantly, banks became cautious and conservative, and both businesses and individuals faced borrowing difficulties, leading to a contraction in consumption and investment.

Faced with economic recession, governments across the eurozone launched stimulus plans, significantly increasing public spending. However, these short-term emergency measures laid the groundwork for future debt crises. Meanwhile, the European Central Bank (ECB) began lowering interest rates and implementing quantitative easing to inject liquidity into the markets, measures that themselves put downward pressure on the euro.

The most damaging blow came as debt crises erupted in countries like Greece, Portugal, and Ireland. Markets began questioning: can the eurozone’s unified currency system truly function? This skepticism eventually evolved into a pessimistic outlook for the entire European economy.

From 1.6038 to 1.034: A Nine-Year Long Decline

Over the next nine years, the euro embarked on an almost irreversible downward trend. Every rebound was suppressed by new concerns, and every piece of good news seemed pale. Confidence in Europe continued to erode, with capital flowing into the US, seen as a safe haven.

In January 2017, the euro finally showed signs of a rebound after falling to a stage low of 1.034. At this point, a series of subtle changes were quietly occurring.

Turning Point: Why Did 2017 Mark the Beginning of a Rebound?

Monetary policy finally took effect The European Central Bank’s years of easing policies were not in vain. By early 2017, the cumulative effects of negative interest rates and quantitative easing began to manifest, restoring vitality to the banking system and gradually improving corporate financing capabilities.

Signs of economic recovery The eurozone’s unemployment rate successfully fell below 10% at the end of 2016, a milestone not seen in years. The Purchasing Managers’ Index (PMI) for manufacturing broke through 55, reflecting a significant rebound in manufacturing activity. These hard indicators dispelled the long-standing pessimism in the market.

Political stabilization 2017 was a year of elections in many eurozone countries. Investors worried about the rise of anti-EU forces, but the results were unexpectedly moderate. Meanwhile, Brexit negotiations, though complex, hinted at broad support for European integration. This alleviated concerns about the EU’s future prospects.

The oversold phenomenon of the euro After nine years of decline, the euro had depreciated by over 35%. This extreme devaluation created energy for a rebound—low prices attracted buying.

Short-term Rise and Rebound in 2018: Lessons Learned

In February 2018, the euro rose to 1.2556, a high not seen since 2015. Investors briefly believed in the story of Europe’s recovery.

But this peak was short-lived. The continued rate hikes by the US Federal Reserve changed the game. Each US rate hike pushed the dollar higher, directly pressuring the euro. Meanwhile, the momentum of European economic growth also waned, with PMI retreating from high levels and manufacturing activity underperforming expectations.

Political turbulence in Italy further exacerbated concerns. The new government’s aggressive fiscal stance triggered renewed worries about European stability. The euro declined again.

The Russia-Ukraine War and Energy Crisis: Creating a New Low in 2022

In September 2022, the euro fell to 0.9536, hitting a twenty-year low. This decline was driven by entirely different reasons than before.

The Russia-Ukraine conflict had a direct, tangible impact on Europe. Dependence on Russian natural gas caused energy prices to soar, inflation to accelerate, corporate profits to erode, and consumer confidence to decline. Market risk aversion shifted capital back into the dollar.

However, this crisis was quickly recognized as not being endless. Although the situation remained severe, it did not worsen further. More importantly, the ECB took action. In July and September 2022, it raised interest rates twice, ending an eight-year era of negative rates. This decision sent a clear signal: fighting inflation was the top priority for the ECB.

As international energy supply chains gradually adjusted, European energy prices eased in the second half of the year, easing corporate cost pressures. The euro began to rebound from its lows.

Investment Perspective: The Euro’s Outlook for the Next Five Years

Constraints of Economic Fundamentals

The eurozone’s economic growth has not been as robust as investors hoped. Despite a continued decline in unemployment, growth remains sluggish, hindered by structural issues like aging industries and insufficient innovation. Geopolitical risks have become normalized, further weakening international capital confidence. Recently, manufacturing PMI fell below 45, signaling a bleak short-term economic outlook.

Subtle Balance of Monetary Policy

The ECB’s current stance remains relatively hawkish. While the US Federal Reserve shifted to a dovish outlook at the end of 2023, the ECB remains cautious about ending rate hikes. This suggests that euro interest rates may stay relatively high, providing some support for the euro.

Historically, the start of US rate-cut cycles often leads to a significant decline in the dollar index within 3-5 years. If this pattern repeats, it could be a long-term positive for the euro.

Impact of the Global Economic Cycle

The strength or weakness of the global economy directly influences demand for European exports. Strong global growth supports the euro, while recession prompts investors to flock to the dollar. The key variable over the next five years is whether the world can avoid a severe recession.

How Taiwanese Investors Can Participate in Euro Investment?

Bank Foreign Exchange Services

Opening a foreign exchange account through a Taiwanese bank is the most traditional method. The advantages are safety and reliability, but the drawbacks include limited trading flexibility and typically no support for short selling.

Forex Brokers (CFD Platforms)

International CFD platforms offer more opportunities for small investors and short-term traders. These platforms support two-way trading, with relatively flexible leverage, suitable for investors wanting to participate in exchange rate fluctuations.

Securities Firms

Some Taiwanese securities firms also provide forex trading interfaces, allowing investors to buy and sell euros on familiar trading platforms.

Futures Market

For investors interested in standardized trading, forex futures contracts offered by futures exchanges are an option. This method offers high transparency and manageable risk.

Conclusion

After twenty years of ups and downs, the euro’s historic highs have witnessed Europe’s economic brilliance, while lows reflect its challenges. Looking ahead five years, if the US begins a rate-cut cycle and no major financial crises occur, the euro is expected to regain upward momentum. Conversely, any significant geopolitical conflict could again push the dollar higher and drag down the euro.

The key to investing is to continuously monitor economic data releases from the US and Europe, central bank policy movements, and geopolitical developments. The combination of these factors will determine the future direction of the euro. For investors, understanding past volatility is not for predicting the future but for staying alert and rational amid complex markets.