I recently looked into the euro’s trend over the past 20 years and found it quite interesting. Since it officially entered circulation in 2002, this currency has had plenty of ups and downs—every major event seems to have left its mark on the euro exchange rate, including the financial crisis, the euro debt crisis, the pandemic, and the Russia-Ukraine war.

The wave in 2008 was a watershed moment. At that time, the euro against the US dollar surged to 1.6038, reaching a historical high, but it quickly peaked and then pulled back. When the US subprime mortgage crisis broke out, Europe’s banking system was dragged down as well, leading to credit tightening, an economic recession, and a surge in countries’ fiscal deficits. Along with the later euro debt crisis, the euro then began a long period of decline. During that time, the ECB kept cutting interest rates and implementing quantitative easing, but those measures only delayed the recession and could not stop the downward pressure on the euro.

What’s interesting is that in early 2017, the euro fell to 1.034, nearly hitting its historical low. At that time, the euro debt crisis had basically been resolved, and the ECB’s easing policies began to take effect. Economic data were also improving—unemployment fell to below 10%, the manufacturing PMI broke 55, and market confidence in the eurozone started to recover. On top of that, that year saw elections in France and Germany, with markets expecting pro-Europe governments to come to power, while Brexit negotiations were also underway. Uncertainty was gradually being digested, and the euro began to rebound.

In February 2018, the euro rose to 1.2556 at one point, but that high didn’t last long. The Federal Reserve started raising interest rates, the US dollar index strengthened, and the eurozone economy began to slow again. With Italy’s political situation unstable, the euro was pushed down once more.

The real turning point came in September 2022. The euro fell to 0.9536, hitting the lowest level in 20 years—lower than the 2017 low. At that time, the Russia-Ukraine war had just broken out; Europe’s energy prices skyrocketed, inflation got out of control, and market risk aversion hit a peak. Money rushed into the US dollar. But later, the ECB began raising interest rates, ending the eight-year era of negative interest rates, and energy prices also gradually fell, allowing the euro to slowly rebound.

By early 2025, the euro fell again to around 1.02, marking another two-year low. At that time, economic data in the eurozone was bleak—Germany suffered a recession for the second consecutive year, and France’s manufacturing activity hit the worst level since May 2020. Consumer and business confidence were both low. More importantly, policy divergence between the US and Europe widened: the Fed would cut rates slowly, while the ECB needed to cut rates significantly. As the interest-rate spread expanded, the dollar stayed strong. After Trump’s election, markets also worried about tariff policies, causing the US dollar index to rise in the early part of the year, leaving the euro relatively weak.

But the turnaround came quickly. By the end of January 2026, the euro broke above 1.20 against the US dollar—this was the first time it had stood above that level since June 2021. However, this was not because the euro itself became much stronger; rather, the US dollar was broadly weakening. Trump repeatedly attacked the Fed’s independence and threatened allies with tariffs, increasing investors’ concerns about US economic policy. Money started “selling the US,” with capital flowing out of dollar-denominated assets, and the euro rose along with it. In addition, the market expected the Fed to continue cutting rates in 2026, while the ECB might keep rates unchanged or even shift toward a more cautious stance. As the US-Europe interest rate gap narrowed, the euro’s appeal increased.

Looking ahead to the next five years, I think there are several key factors worth watching. First is divergence in monetary policy between the US and Europe—this is the most core variable affecting the euro exchange rate. If the Fed continues to cut rates while the ECB holds steady, the shrinking interest-rate spread will drive euro appreciation. Second is economic and fiscal stimulus in the eurozone, especially Germany’s large-scale fiscal expansion. If carried out smoothly, growth expectations could improve, and the euro could rebound to the 1.20–1.25 range. Third are geopolitics and energy prices—these are two-way variables. If geopolitical tensions ease quickly and energy prices fall, that would be a major positive for the eurozone: it could improve trade conditions, reduce corporate costs, and boost economic growth. Conversely, if conflicts keep expanding, stagflation risk would rise, the ECB could find itself in a policy dilemma, and capital may shift toward the dollar for safety.

Overall, I expect the euro’s performance in 2026 to be somewhat stronger. Especially if the Fed continues cutting rates, the US-Europe interest rate spread narrows, and energy risks ease, the euro’s rebound momentum should be more pronounced. Over the long term, supported by structural factors, the euro should be able to maintain a relatively steady performance, but sustaining a one-way, continuous surge will still be challenging.

If you’re considering euro investments, you should pay close attention to changes in the US-Europe interest rate spread, the execution progress of Germany’s fiscal stimulus, and developments in geopolitical and energy-related risks. These are key indicators that affect the euro’s trajectory.