Recently, I looked into the euro's performance over the past 20 years and found an interesting phenomenon. As the world's second-largest reserve currency, the euro has experienced a peak drop during the 2008 financial crisis, deep adjustments during the European debt crisis, and more recent energy shocks and divergence in central bank policies. This history actually encapsulates a microcosm of global economic changes.

2008 was a watershed moment. At that time, the euro against the US dollar soared to a record high of 1.6038, but with the outbreak of the US subprime mortgage crisis, European banking systems came under pressure, credit tightened, and economic recession followed. Governments were forced to significantly increase fiscal deficits, and the European Central Bank launched years of quantitative easing. This series of events shook market confidence in the euro, causing capital to flow back to the US.

Interestingly, early 2017 marked a turning point. After nearly nine years of decline, the euro bottomed out and rebounded around 1.034. By then, the European debt crisis had largely been resolved, ECB's easing policies began to take effect, unemployment fell below 10%, manufacturing PMI broke above 55, and market expectations for economic improvement in the eurozone significantly increased. Coupled with major national elections in Europe that year, market optimism pushed the euro higher. By February 2018, the euro briefly rose to 1.2556, but as the Federal Reserve continued to raise interest rates, eurozone economic growth slowed, and Italy's political instability, the euro started weakening again.

The real low point came in September 2022. The Russia-Ukraine war, energy crisis, and soaring inflation caused the euro to fall to 0.9536, hitting a 20-year low. At that time, markets were filled with concerns about a European recession, and risk aversion boosted the dollar. But since last year, the situation has reversed. The ECB began raising interest rates, energy prices gradually declined, and concerns over the war eased.

Recently, this trend has become even more interesting. In early 2025, the euro briefly dropped to around 1.02, hitting a two-year low, mainly due to weak eurozone economic data, consecutive recessions in Germany, and persistent manufacturing weakness. Meanwhile, the Fed's rate cuts lagged far behind the ECB, widening the US-Europe interest rate differential, and capital flowed into the dollar. But starting in March, the euro rebounded sharply, surging above 1.20 by the end of January this year. The driving forces behind this rebound are clear: confidence in the dollar was shaken, policy volatility under Trump triggered investor concerns, and capital started "selling the US."

The current situation is that the Fed is expected to continue cutting rates, while the ECB, due to stable inflation, tends to maintain rates, narrowing the US-Europe interest rate gap and boosting the euro. Germany's large-scale fiscal expansion has also become an important support. If these factors continue to develop, the euro could maintain strength in the 1.20-1.25 range. Of course, geopolitical risks and energy prices remain variables—any escalation of conflicts or surges in energy prices could rewrite the script.

For Taiwanese investors, the euro against the Hong Kong dollar is currently at a relatively low historical level, making this recent euro rebound worth paying attention to. Whether through bank forex trading, CFD platforms, or futures markets, there are opportunities to participate in this trend. In the short term, divergence in US and European policies and Germany's fiscal stimulus should continue to support the euro. Long-term, it depends on whether the eurozone can truly achieve economic recovery and how global geopolitical risks evolve.

In simple terms, the euro's future trajectory over the next few years depends on three key variables: the interest rate policy divergence between the US and Europe, the eurozone's economic growth prospects, and geopolitical and energy price risks. If the Fed continues to cut rates, European fiscal stimulus proceeds smoothly, and energy risks ease, the euro's rebound momentum will be quite evident. But a sustained, one-sided strengthening trend will be more challenging. Going forward, keep an eye on changes in the US-Europe interest rate gap, Germany's budget execution data, and related geopolitical risk developments.