Recently, I’ve been analyzing 20 years of euro exchange rate trends and found that the euro has experienced truly dramatic fluctuations during this period. From the historic high of 1.6038 in 2008 all the way down to a 20-year low of 0.9536 in 2022, the story behind these movements is much more complex than simply looking at charts.

Speaking of the 2008 peak, it was triggered by the US subprime mortgage crisis. Although it seemed far removed from Europe, the European banking system was instantly affected. Major financial institutions had cross-exposures, and after Lehman Brothers collapsed, credit tightening rapidly spread to Europe. Companies and consumers couldn’t borrow money, leading to an economic recession. To counter this shock, the European Central Bank began cutting interest rates and implementing quantitative easing, which resulted in the euro starting a prolonged depreciation that lasted nine years.

By early 2017, the euro finally fell to a low of 1.034 before rebounding. At that time, the European debt crisis was largely resolved, ECB’s easing policies were taking effect, and political uncertainties from the French and German elections had eased, boosting market confidence in Europe. The euro was already heavily oversold, providing strong momentum for a rebound. In February 2018, it even surged to 1.2556, but then the Federal Reserve started raising interest rates, strengthening the dollar, and pushing the euro back down.

The most ferocious decline occurred in 2022, when the euro briefly dropped to 0.9536, hitting a 20-year low. The Russia-Ukraine war triggered a risk-off sentiment, boosting the dollar. Rising energy prices in Europe pushed inflation higher, and the economic outlook for the eurozone became pessimistic. However, the ECB later began raising rates, energy prices gradually fell, and the euro slowly stabilized.

Interestingly, in early 2025, the euro temporarily weakened to around 1.02. At that time, economic data in the eurozone was grim—Germany experienced two years of negative growth, and France’s manufacturing sector was also declining. The key was that the Fed was cutting rates more slowly than the ECB, widening the US-Europe interest rate differential, and capital was flowing into the dollar. Plus, after Trump’s election, concerns about tariffs impacting European exports further depressed the euro.

But a turning point came in early 2026. Confidence in the dollar waned as Trump repeatedly attacked the Federal Reserve’s independence, raising fears about US policy. Capital started fleeing the dollar. Meanwhile, the Fed was expected to continue cutting rates, while the ECB, due to stable inflation, might keep rates unchanged, narrowing the US-Europe rate gap. As a result, the euro briefly broke above 1.20, reaching a high not seen since June 2021. This rebound was mainly driven by a weakening dollar rather than a strong euro, but for euro investors, the outcome was the same.

Looking ahead, the key to the euro’s future movement still depends on the divergence in monetary policies between the US and Europe. If the Fed continues cutting rates while the ECB holds steady, the narrowing interest rate differential will support the euro. If Germany’s fiscal expansion plans proceed smoothly, it could improve growth prospects in the eurozone and push the euro-dollar exchange rate toward 1.20–1.25.

However, geopolitical risks remain a variable. If tensions in the Middle East or Ukraine escalate, energy prices could spike again, increasing inflation and economic pressures in Europe. Central banks might face difficult choices, and the euro could weaken. Conversely, if geopolitical tensions ease and energy prices fall, it would benefit Europe’s trade conditions and corporate costs, providing room for the euro to appreciate further.

From a long-term perspective, the euro is likely to be somewhat stronger by 2026, especially if the US-Europe interest rate gap continues to narrow and energy risks diminish. But I think a sustained, one-way rally is unlikely to be easy. The most important factors to watch will be changes in the US-Europe interest rate differential, Germany’s fiscal policy progress, and geopolitical developments.