Euro 20-Year Market Review: Why Has the USD Exchange Rate Been So Volatile? Is There Still Profit in 2024?

As the world’s second-largest trading currency, the euro has not had a peaceful day since its official circulation began in 2002. The 2008 financial crisis, the Eurozone debt crisis, the Russia-Ukraine war… each major event has left a deep mark on the trend of the US dollar exchange rate. Want to buy the dip on the euro? First, understand what has happened over the past 20 years to see the profit opportunities in the next 5 years clearly.

The Three Craziest Moments: A 20-Year Overview of the Euro Market

The Great Crash of 2008: The historical high of 1.6038

In July 2008, the euro soared to 1.6038 against the dollar, then plummeted rapidly. This was no coincidence—the US subprime mortgage crisis spread from Wall Street to all of Europe.

What happened at that time? Major financial institutions suffered losses one after another, and pressure on the European banking system skyrocketed. After Lehman Brothers’ bankruptcy, counterparty risk became the most terrifying term in the financial world, and global credit froze. Companies and consumers couldn’t borrow money, and the economy further declined. To save the market, governments around the world issued bonds aggressively to stimulate, resulting in mountain-high debt, which later triggered the Eurozone debt crisis.

The key point is that although the European Central Bank (ECB) also cut interest rates and implemented quantitative easing, these rescue measures actually suppressed the euro’s exchange rate. Even worse, debt problems in countries like Greece, Ireland, and Portugal surfaced, causing market doubts about whether the euro could hold up.

The 2017 Turnaround: From 1.034 rebound to a new high

After dropping to 1.034 in January 2017, the euro rebounded to 1.2556 within just a year. How was this achieved?

The ECB’s easing policies began to take effect. The eurozone’s unemployment rate fell below 10%, manufacturing PMI(PMI) broke through 55, and economic data improved across the board. Meanwhile, the French and German elections sent signals of pro-Europe sentiment, and uncertainties around Brexit gradually dissipated. More importantly, the euro had fallen over 35% from its 2008 high, so any positive news in an oversold state could trigger a rebound.

However, this rally didn’t last long. The Federal Reserve began tightening policy, the US dollar index strengthened; eurozone economic growth slowed; Italy’s political situation was unstable… By mid-2018, the euro was again under pressure.

The 2022 Bloodbath: Dropped to 0.9536, a 20-year low

In September 2022, the euro plummeted to 0.9536, hitting a 20-year low. Why was it so disastrous this time?

The Russia-Ukraine war disrupted Europe’s energy stability. Natural gas and oil supplies were tight, energy costs soared, and businesses suffered. Inflation rates climbed sharply. At the same time, risk aversion surged, and funds flooded into the US dollar.

Fortunately, the ECB raised interest rates twice in July and September, ending an 8-year era of negative interest rates. This sent a strong signal—the central bank aimed to defend the euro. Additionally, by September, although the Russia-Ukraine war continued, it hadn’t worsened, and international oil and gas supply chains were adjusting, causing energy prices to start falling. All these factors provided opportunities for the euro to rebound.

Will the euro still be profitable in the next 5 years?

Favorable Factors

The Federal Reserve has started a rate-cutting cycle — this is the most critical development in nearly 20 years. History shows that whenever the Fed begins to cut rates, the US dollar index tends to decline significantly over the next 3-5 years. This indirectly benefits the euro.

The ECB’s more cautious stance — while the US has shown signs of easing, the ECB remains restrained on rate cuts, making euro interest rates relatively more attractive.

Risk Factors

Economic growth remains sluggish — although unemployment in the eurozone is decreasing, economic growth rates are near zero, and structural aging remains a major challenge. The latest manufacturing PMI fell below 45, indicating a pessimistic economic outlook for the next half-year.

Geopolitical risks become normalized — conflicts like Russia-Ukraine, US-China relations, Middle East tensions… frequent risk events. If a major financial crisis occurs, safe-haven funds will flow back to the US, suppressing the euro.

Global economic uncertainty — if the world enters recession, demand for European goods will decline, which is directly unfavorable for the euro.

Investor Opportunity Window

Based on comprehensive analysis, the euro may be relatively weak in the first half of 2024. But once the US indeed starts cutting rates, and no major financial crisis occurs, the euro is likely to restart its upward trend until the ECB also significantly cuts rates. This process could last 2-3 years.

If you want to profit from fluctuations in the US dollar exchange rate, the key is to closely monitor economic data and central bank actions in the US and eurozone.

How can Taiwanese investors invest in euros?

Method 1: Bank Forex Accounts
The most traditional way, but with many restrictions—generally only able to buy long positions, not short.

Method 2: CFD Platforms
This is the preferred choice for small and short-term investors. You can open a position with just dozens of dollars, trade both ways, and enjoy maximum flexibility.

Method 3: Securities Firms
Some brokers offer forex trading services, but the variety and liquidity are not as good as the first two options.

Method 4: Futures Exchanges
Suitable for investors familiar with futures, allowing forex futures trading with higher leverage.

Final Words

The future of the euro depends on three variables: the Fed’s rate-cutting pace, the ECB’s policy stance, and global geopolitical developments. If the US really cuts rates sharply, the euro could indeed strengthen. But this depends on no sudden financial crisis or geopolitical black swan event.

In any case, keep a close eye on key economic data releases—US employment reports, ECB decisions, manufacturing PMI—as these are the triggers influencing the US dollar exchange rate. Grasp these nodes to find opportunities in future market movements.