Recently, I’ve been organizing 20 years of euro exchange-rate trend data and found some pretty interesting patterns. As the world’s second-largest reserve currency, why has the euro been rising and falling so persistently? In fact, there are many deep underlying reasons behind it—let’s talk about it properly.

First, let’s look at the wave in 2008. In July, the euro against the US dollar surged to a historic high of 1.6038, and then it began a steady slide downward. At that time, the US subprime mortgage crisis broke out, and the European banking system was also affected. Assets were devalued sharply, and banks started to tighten credit. With companies and consumers unable to borrow money, economic growth stalled, and investors pulled funds back to the United States for safety. Even worse, to deal with the recession, countries in the euro area borrowed heavily to stimulate the economy. As a result, debt crises in countries such as Greece, Portugal, and Spain came to light, and the market began to question the euro’s own sustainability. Although the European Central Bank started cutting interest rates and implementing quantitative easing, this also meant that pressure for the euro to depreciate continued.

From 2008 to 2017, the euro went through nearly 9 years of declines. By January 2017, the exchange rate had fallen to 1.034, hitting a new low. But after that, things began to change. The euro area sovereign debt crisis was basically resolved, the ECB’s accommodative policies started to take effect, unemployment fell, the manufacturing PMI pushed above 55, and economic data clearly improved. On top of that, that year was an election year in France and Germany, and the market expected pro-European policies to come to power—confidence in the euro jumped significantly. At the same time, Brexit negotiations also began. Although there was uncertainty, at least there was progress in the negotiations, reducing suspense. Most importantly, the euro had been oversold by more than 35%, with negative factors largely “priced in,” laying the groundwork for a rebound.

In February 2018, the euro briefly rose to 1.2556, the highest level since 2015. But good times didn’t last. The Federal Reserve began raising interest rates, strengthening the US dollar, and the euro came under pressure. At the same time, economic growth in the euro area started to slow: the manufacturing PMI fell back from 60, and Italy’s political situation was also unstable, hitting investor confidence again. The question of why the euro kept falling resurfaced at that point.

The real turning point was September 2022. The euro fell to 0.9536, a 20-year low. After the outbreak of the Russia-Ukraine war, risk-aversion sentiment intensified, and the US dollar surged as a safe-haven asset. Europe’s energy prices skyrocketed, creating huge inflation pressure, and businesses faced rising costs. But in the second half of the year, the situation between Russia and Ukraine became more stable. Energy prices started to fall, and the ECB also began raising interest rates, ending the eight-year era of negative interest rates. These factors together helped the euro start to rebound.

In early 2025, another wave of declines appeared. The euro fell to around 1.02, setting a new low since November 2022. The main reason was that the economic outlook for the euro area was not optimistic: Germany shrank for two consecutive years, and France’s manufacturing activity was also very weak. More importantly, the Federal Reserve was cutting rates more slowly than the ECB. The US-EU interest-rate differential widened, and capital tended to flow toward the US dollar. On top of that, after Trump came to power, the market worried that tariffs would be imposed on European export goods, putting even more pressure on the euro area economy.

But by January 2026, the situation reversed again. The euro against the US dollar broke above 1.20, the first time it had stood above that level since June 2021. This rebound wasn’t because the euro itself became stronger; it was because the US dollar broadly weakened. Trump frequently attacked the independence of the Federal Reserve, threatened tariff actions against allies, and investors grew concerned about US policy—leading capital to start “selling America.” Meanwhile, market expectations shifted toward the idea that the Federal Reserve would continue cutting rates, while the ECB might keep interest rates unchanged. As a result, the US-EU interest-rate differential would narrow, and the euro’s attractiveness would increase.

Looking at the trend right now, I think the euro’s performance over the next few years will depend on a few key variables. First is the divergence in monetary policy between the US and Europe. If the Federal Reserve continues cutting rates while the ECB stays on hold, a narrowing of the interest-rate spread could lift the euro. Second is whether Germany’s fiscal stimulus can be implemented smoothly. Germany plans a major fiscal expansion—if it succeeds, expectations for the entire euro area economy could improve, and the euro would have the chance to rebound into the 1.20–1.25 range.

Finally, geopolitical factors and energy prices also matter. If conflicts ease and energy prices fall, European companies’ costs would decrease, and economic growth could improve by 0.2–0.5 percentage points—this would be a clear positive for the euro. Conversely, if conflicts escalate and the risk of stagflation rises, the ECB could face policy dilemmas, and capital might shift back toward the US dollar for safe-haven purposes.

In simple terms, the answer to why the euro keeps falling is not a single factor, but the combined effect of multiple forces. Financial crises, debt crises, energy crises, policy divergence—each one keeps rewriting the euro’s fate. But based on the current situation, the euro’s trend in 2026 should be somewhat stronger. In particular, if the Federal Reserve continues cutting rates, the US-EU interest-rate differential narrows, and energy-related risks ease, the euro’s rebound momentum would be more pronounced. Still, achieving a one-way, sustained rally would be quite difficult, because structural challenges remain.

Going forward, investors should closely watch changes in the US-EU interest-rate differential, the progress of the implementation of Germany’s fiscal stimulus, and shifts in geopolitical and energy-related risk trends. These factors will directly affect the euro’s investment opportunities in the coming years.