Euro's ten-year fluctuation: From a low rebound to an energy crisis, how should investors position themselves?

A Currency Story of “Rebound from High to Low and Then Up Again”

Since its circulation in 2002, the world’s second-largest reserve currency, the euro, has experienced nearly 20 years of intense volatility. From the historical high of 1.6038 during the 2008 financial crisis to the 20-year low of 0.9536 in September 2022, this prolonged cycle reflects the fluctuations of the European economy, policy adjustments, and the reshaping of the global economic landscape.

Many investors are curious: what turning points has the euro experienced over the past decade? Are there still investment opportunities ahead? This article will analyze data and historical events to answer these questions one by one.

2008: The Financial Tsunami Shatters the Euro’s Rise

In July 2008, the euro against the US dollar rose to a historic high of 1.6038, but then embarked on a ten-year decline.

This turning point was triggered by the global financial tsunami caused by the US subprime mortgage crisis. The impact was not limited to the US but quickly spread across the entire European financial system:

Bank Asset Collapse and Credit Chain Breakage — Major financial institutions suffered huge losses due to exposure to subprime-related products. After Lehman Brothers collapsed, market fears of counterparty risk surged, leading banks to tighten lending. Businesses and consumers faced financing difficulties, and economic activity cooled.

Rising Fiscal Deficits — Countries in the Eurozone launched stimulus plans to counteract recession, resulting in a significant increase in public debt and long-term credit rating pressures.

The Dilemma of the European Central Bank (ECB) — Faced with an economic winter, the ECB cut interest rates and launched quantitative easing, stabilizing markets in the short term but also sowing the seeds for euro depreciation.

The Shadow of the Euro Debt Crisis — Not long after the financial crisis, debt problems surfaced in Greece, Ireland, Portugal, Spain, and Italy (collectively known as the “PIIGS”). Investors began questioning: how long can the Eurozone’s operational mechanism hold?

These factors combined led to a flight of international capital back to the US, initiating a prolonged depreciation cycle for the euro.

2017: A Rebound Opportunity Born from Oversold Conditions

In January 2017, after falling to 1.034, the euro rebounded, marking the start of a year-long recovery.

The nine-year decline had severely oversold the euro—down more than 35% from the 2008 high. This rebound was not accidental but the result of multiple factors working together:

Policy Effects Emerge — The ECB’s years of negative interest rates and quantitative easing finally showed results. Eurozone economic data improved: unemployment fell below 10% at the end of 2016, and the manufacturing Purchasing Managers’ Index (PMI) broke through 55, indicating a recovery.

Political Risk Eases — The results of the French and German elections in early 2017 reassured markets. Investors believed that the rise of pro-European parties would strengthen eurozone integration. Meanwhile, the initiation and early negotiations of Brexit eased fears of EU disintegration.

US Policy Uncertainty — The policies brought by Trump’s presidency introduced variables, but some capital flowed into euro assets seen as relatively safe.

Overall, the negative factors for the euro had been fully priced in, and markets began to reassess its value.

2018: Rebound Stalled, Multiple Factors Reapply Pressure

In February 2018, the euro briefly rose to 1.2556, a three-year high, but then entered a sustained decline.

Although this rebound lasted about a year, it was ultimately halted by several forces:

US Rate Hike Cycle Begins — The Federal Reserve started raising interest rates in 2018, strengthening the US dollar and exerting downward pressure on the euro.

Eurozone Economic Momentum Weakens — Growth peaked at 3.1% in Q4 2017 and then slowed. Manufacturing PMI retreated from high levels of 60, reflecting a turning point in the economic cycle.

Italian Political Crisis — Divergences within the coalition government formed by the Five Star Movement and the Northern League shook investor confidence.

Multiple negative factors combined, pushing the euro back into a downward trend.

September 2022: Energy Crisis Pushes Euro to 20-Year Low

In September 2022, the euro against the dollar fell to 0.9536, hitting a 20-year low before gradually rebounding.

This extreme low was driven by the energy supply crisis triggered by the Russia-Ukraine war:

Energy Prices Spiral Out of Control — Disruptions in Russian natural gas and oil supplies caused energy prices in Europe to surge in the first half of the year, pushing inflation to record highs. Rising costs led to economic slowdown fears, and the US dollar, as a safe haven, strengthened.

Risk Aversion Intensifies — Geopolitical uncertainties early in the war prompted large-scale portfolio adjustments, with funds flowing into the safest US dollar assets.

Reversal Signals Appear — As the conflict stabilized and energy supply chains adjusted, international oil and gas prices declined in the second half of 2022. Europe’s energy crisis eased, easing corporate cost pressures. Meanwhile, the ECB raised interest rates twice in July and September, ending eight years of negative rates and signaling tightening policy, which supported the euro.

The Next Five Years: Evaluating Euro Investment Opportunities

To determine whether the euro is worth investing in over the next five years, three key factors should be monitored:

Economic Growth Potential — The continued decline in Eurozone unemployment is positive, but growth rates are near zero, with aging industries and normalized geopolitical risks constraining future momentum. Recently, manufacturing PMI fell below 45, indicating a pessimistic economic outlook for the coming half-year.

Divergence in Central Bank Policies — As the US Federal Reserve begins dovish expectations and a rate cut cycle by the end of 2023, the ECB remains cautious about ending rate hikes. Although euro interest rates are lower than US rates, maintaining relatively high rates can support the euro. Historically, US rate cuts over 3-5 years have led to significant declines in the US dollar index, which is favorable for the euro in the medium term.

Global Economic Trends — If the global economy improves, demand for European goods increases, raising the probability of euro appreciation; otherwise, capital may flow back to the US.

Four Investment Tools for Euro Exposure

Depending on investment style and capital scale, investors can choose different participation methods:

Bank Forex Accounts — Good liquidity, but may have quota restrictions and typically only allow long positions, not shorts.

International Forex Brokers — Offer leverage and two-way trading, suitable for hedging, small investors, and short-term traders. Attention should be paid to platform compliance.

Securities Company Forex Services — Integrated with stock investment frameworks, convenient for local investors, but with limited options.

Futures Exchanges — Provide standardized contracts with high transparency, suitable for larger capital and professional investors, but require a higher understanding of the market.

Conclusion

In summary, the decade-long trajectory of the euro reflects major global economic cycles. In the first half of 2024, the euro may remain relatively weak, but if the US proceeds with rate cuts as expected and no major financial crises occur, the euro is likely to regain upward momentum until the European Central Bank significantly cuts rates.

The biggest risk in the next five years is the escalation of geopolitical events. If a major crisis occurs, capital will flow back to the US, benefiting the dollar and pressuring the euro.

Investment advice: closely monitor economic data releases, central bank policy movements, and international geopolitical developments in the US and Europe to seize cyclical opportunities in euro investments.