Is there still a chance after the euro's historic low? 20 years of exchange rate data reveal your investment prospects

As the world’s second-largest reserve currency, the euro has experienced four major crises since its circulation began in 2002: the 2008 financial crisis, the subsequent euro debt crisis, the COVID-19 pandemic impact in 2020, and most recently the Russia-Ukraine war and energy crisis. Notably, in September 2022, the euro hit a historic low of 0.9536, a figure that itself signals to investors— the euro is not far from its bottom.

This article will analyze the causes behind the euro’s historical low, review 20 years of exchange rate fluctuations, and finally provide an investment outlook for the next five years.

2022 Euro Historical Low: Turning Crisis into Opportunity

In September 2022, the euro against the US dollar fell to a historic low of 0.9536, marking the lowest level in nearly 20 years. While this euro historical low may seem despairing, it is precisely the moment value investors should pay close attention to.

Why did this historic low occur?

Geopolitical shocks are the main cause. After the outbreak of the Russia-Ukraine war, investors rapidly sold risk assets and fled to safe havens—the US dollar. Europe, as a geographically adjacent conflict zone, faced direct threats of energy supply disruptions, accelerating safe-haven capital flows into the US.

Energy crisis exacerbation. Russia cut natural gas supplies, causing European energy prices to surge over 10 times in the first half of 2022, with natural gas futures reaching record highs. Corporate costs soared, recession expectations increased, further undermining confidence in the euro.

Aggressive rate hikes by the Federal Reserve contrasted with European actions. Starting from March 2022, the Fed rapidly raised interest rates, pushing the US dollar index to a historic high, while the European Central Bank lagged behind. This policy divergence directly drove the euro to its historic low against the dollar.

Signal of rebound after the low

Since the September 2022 low, the euro has gradually rebounded, supported by three key factors:

• The European Central Bank finally began its rate hike cycle. Consecutive hikes in July and September 2022 ended 8 years of negative interest rates. Although the magnitude was less than the Fed’s, the direction was correct, providing substantial support for the euro.

• Expectations of easing in the Russia-Ukraine situation. Although the war has not ended, concerns about further deterioration have eased, with risk aversion sentiment returning from extreme levels to rationality.

• Gradual adjustment of international energy supply chains. Europe actively sought alternative natural gas sources, energy prices retreated from peak levels, corporate cost pressures eased, and recession risks declined.

Reviewing Historical Highs and Turning Points

To understand the euro’s future trend, it’s essential to recognize its historical volatility patterns.

2008 Peak at 1.6038: Why was this the highest point?

In July 2008, the euro against the dollar reached a historic peak of 1.6038. At that time, the US subprime mortgage crisis was brewing—seemingly contradictory—why was the euro strongest during the crisis?

The reason lies in differing market expectations. In 2007, the market was broadly bearish on the dollar, as the US housing bubble was already evident and the subprime crisis was fermenting. Europe’s economy was relatively stable, and the euro was viewed as a safe haven. Investors bought euros in large quantities, pushing the peak higher.

However, after the crisis erupted, the situation reversed. Cross-Atlantic dealings of large financial institutions caused European banks to quickly become infected with US financial toxins. Global credit tightening ensued, and investors shifted back to the dollar as the true safe asset. After Lehman Brothers’ bankruptcy in September 2008, the euro entered a prolonged 9-year decline.

2017 Low at 1.034: Why did it rebound?

In January 2017, the euro against the dollar fell to 1.034, ending a nearly 9-year bear market with a turning point.

The reasons for this rebound seem complex but are actually logical:

• The economic impact of the euro debt crisis was largely digested. Greece, Portugal, and other “PIIGS” countries still had high debt, but the worst was over, and fears of EU disintegration significantly diminished.

• ECB policies took effect. Long-term negative rates and QE finally stimulated economic recovery. Unemployment in the eurozone fell from over 10% at the end of 2016 to near 8%, manufacturing PMI broke above 55, and economic data improved.

• Technical rebound after overselling. Compared to the 2008 high of 1.6038, the euro had fallen over 35%. According to market laws, extreme overselling often accompanies extreme rebounds. The euro’s valuation had reached a historical bottom, with huge rebound potential.

• Political risks receded. In 2017, France and Germany elected pro-EU leaders, and initial Brexit negotiations showed willingness to cooperate. Geopolitical uncertainties decreased, and the euro regained investor confidence.

2018 Reversal at 1.2556: Why did it fall again?

In February 2018, the euro briefly rose to 1.2556 before falling back. This turning point reflected a market reassessment of the differences between US and European fundamentals.

• The Fed continued rate hikes. Starting from March 2018, the Fed raised rates four times in succession, strengthening the dollar index again. Widening interest rate differentials made dollar assets more attractive.

• Eurozone economic growth peaked. After Q4 2017 GDP growth of 3.1%, growth slowed significantly in 2018, with manufacturing PMI falling from high 60s to just above 50. The loss of economic momentum directly hit the euro.

• Italian political risks resurfaced. In May 2018, a new government was formed with unclear policy stance, reigniting concerns over European political stability.

20-Year Pattern Insights: Three Cycles of Euro Investment

Analyzing 20 years of euro fluctuations reveals three investment cycles:

• First cycle (2002-2008): Uptrend. The euro rose from inception to peak, benefiting from European economic integration. Investors should have held during this period.

• Second cycle (2008-2017): Downtrend. The financial crisis and euro debt crisis compounded, causing the euro to suffer a double blow, with a 9-year decline. This was the best period for bearish euro views.

• Third cycle (2017-present): Volatility phase. The euro rebounded from lows but with increased fluctuations, heavily influenced by global events. This is a high-risk, high-reward trading period.

The Next 5 Years: Can the euro reverse its course?

Looking ahead, three factors will determine the euro’s investment prospects:

Factor 1: Fed policy shift

The most critical point is when the Fed begins to cut rates. By the end of 2023, markets have already priced in a rate cut cycle. Historically, whenever the US starts easing monetary policy, the dollar index tends to decline significantly within 3-5 years. This is a major positive for the euro.

If the dollar index falls 20-30% over the next 3-5 years, the EUR/USD could return to the 1.15-1.25 range, offering a 30-40% upside from current levels.

Factor 2: Will the European economy stabilize?

The eurozone faces structural issues like aging populations and industrial upgrading difficulties. Recently, manufacturing PMI fell below 45, reflecting pessimism about economic prospects. If Europe enters recession, even a weakening dollar may not lift the euro.

Investors should closely monitor eurozone unemployment, inflation, and manufacturing data. Only when these indicators improve significantly can the euro have fundamental support.

Factor 3: Geopolitical “black swan”

Any sudden geopolitical event—Russia-Ukraine war, Middle East tensions, Taiwan issues—could trigger risk aversion, boosting the dollar and depressing the euro.

If no major geopolitical shocks occur in the next five years, the euro is likely to steadily appreciate. Conversely, the dollar may once again become the preferred safe haven.

Practical Investment Guide

Trading methods comparison

• Bank forex trading: Suitable for conservative investors, capital is safe but liquidity is poor, spreads are wide.

• CFD platforms: Suitable for professional investors, can leverage small capital for large gains, but risks are amplified.

• Futures markets: Suitable for those wanting large-scale trading, high transparency but requires sufficient margin.

• Securities firms: An option between banks and CFD platforms.

Practical tips

If bullish on the euro’s rebound over the next 3-5 years:

• Use staggered positions; avoid all-in bets
• Add positions near historic lows (0.95-1.0 range)
• Set stop-loss at 0.92, take-profit at 1.15-1.20
• Regularly monitor ECB rate decisions and economic data

If cautious:

• Wait for signals that the ECB has finished rate hikes
• Wait for the Fed to officially start cutting rates
• Wait for confirmation of economic data improvement in the eurozone

Conclusion

The 20-year volatility history of the euro shows that crises often breed opportunities. The 2022 historic low of 0.9536 is not the end but a new beginning.

In the next five years, the shift in Fed policy will be the main driver for the euro. If the US begins to cut rates without major financial crises, the euro is likely to resume its upward trend, with gains reaching 20-30% before facing new adjustments.

However, investors must remember: success in currency trading depends on a deep understanding of macroeconomics, not short-term predictions. Regularly reviewing US employment data, eurozone PMI, and central bank policy changes is the true secret to long-term profits.