Recently, I looked back at the euro’s performance over the past 20-plus years and found that this history is actually well worth in-depth research. As the world’s second-largest reserve currency, the euro’s exchange-rate trend reflects too many stories of economic cycles and political changes.

When it comes to the financial crisis of 2008, the euro against the US dollar surged to a historical high of 1.6038, and then it began a long-term slide. At that time, the US subprime mortgage crisis spread to Europe; the banking system was under enormous pressure, and credit tightening made it difficult for both businesses and consumers to obtain loans, ushering in an economic recession. The ECB was forced to cut interest rates and launch quantitative easing. While these measures stabilized financial markets, they also intensified downward pressure on the euro’s value. What’s worse is that shortly after the crisis, the debt problems of the PIIGS countries (Greece, Ireland, Portugal, Spain, Italy) came to light, and market confidence in the euro area fell sharply.

I noticed that January 2017 was a turning point. After nearly 9 years of continuous declines, the euro started to rebound from a historical low of 1.034. By then, the euro-area debt crisis had basically been resolved, and the ECB’s easing policies began to take effect. Unemployment fell below 10%, and the manufacturing PMI pushed past 55. These figures showed that the economy really was improving. On top of that, expectations for the elections in France and Germany that year were positive, and uncertainties surrounding Brexit gradually dissipated, leading investors to turn bullish on the euro. Honestly, at that point the euro was already severely oversold—down more than 35% from its 2008 high—so the foundation for a rebound had already been laid.

But good times didn’t last. In 2018, the US Federal Reserve kept raising interest rates, the US dollar index strengthened, and growth in the euro area economy also began to slow. Coupled with instability in Italy’s political situation, after the euro exchange rate reached 1.2556 in February, it fell back. During this period, I came to appreciate that the euro’s trend is often influenced by both US dollar policy and political factors within the region.

September 2022 was an extreme moment, when the euro hit the lowest level in 20 years at 0.9536. At that time, the Russia-Ukraine war had just broken out, risk-averse sentiment surged, and the dollar was being snapped up. Meanwhile, Europe’s energy crisis was severe: limited supplies of natural gas and oil drove energy prices sharply higher, and inflation in the euro area was elevated. Fortunately, the ECB raised interest rates twice in July and September, ending the long era of negative interest rates that had lasted 8 years. With the war situation gradually stabilizing and energy prices starting to fall, the euro finally began to rebound.

Entering early 2025, the euro fell again to around 1.02. During that period, euro-area economic data looked bleak: Germany contracted for two consecutive years, France’s manufacturing activity saw its worst decline since May 2020, and both consumer and business confidence were sluggish. The key factor was that the US Federal Reserve and the ECB were moving in completely different directions on policy: the Fed, because of the strength of the US economy, was slow to cut rates, while the ECB, because the economy was relatively weak, increased the magnitude of its rate cuts. The widening US-euro-area interest-rate spread led capital to flow to the US dollar. On top of that, after Trump was elected, markets worried that he would impose tariffs on European goods, putting pressure on the export-oriented economies of the euro area, and the euro naturally weakened.

But starting in March, the situation reversed. By the end of January, the euro against the US dollar broke above the 1.20 level, reaching the first time it had stood above that level since June 2021. My view is that this rise was not because the euro itself was particularly strong, but because the US dollar broadly weakened. Trump repeatedly attacked the independence of the Fed, threatened tariffs on allies, and these policy uncertainties made investors worried. Capital began to “sell dollars,” with large outflows from dollar-denominated assets shifting toward the euro. At the same time, market expectations that the Fed would continue cutting rates while the ECB kept rates unchanged narrowed the US-euro-area interest-rate gap, further supporting the euro’s appreciation. The euro is now stabilized above 1.14 in relatively high territory.

Looking ahead to the next five years, I think several factors will determine whether the euro can generate returns. First is the divergence in monetary policies between the US and Europe, which is the most critical factor. If the Fed continues to cut rates while the ECB keeps its policy unchanged, the narrowing of the interest-rate differential would drive euro appreciation; otherwise, the euro will face pressure. Second is the euro area’s economic outlook—especially whether Germany’s large-scale fiscal expansion can truly pull growth along. If it is implemented smoothly, the euro has a chance to rebound into the 1.20–1.25 range. Third are geopolitics and energy prices: if tensions ease and energy prices fall, it will be positive for the euro area’s trade conditions and corporate costs.

My current preliminary assessment of the euro’s exchange-rate trend is that, supported by the factors above, the euro should still maintain a relatively steady performance in 2026. However, achieving an uninterrupted, one-way rally is still relatively difficult, because structural issues in the euro area remain. Investors may want to pay close attention to changes in the US-euro-area interest-rate differential, the progress of Germany’s fiscal stimulus implementation, and geopolitical risks—these are key indicators that affect the euro’s exchange-rate trend. If you’re also optimistic about the euro’s outlook, you could consider participating via bank foreign-exchange accounts, foreign-exchange brokers, or the futures market, choosing tools that match your risk tolerance and capital size.