European financial markets have experienced significant volatility greater than the years, largely due to a combined of local and global economic and political factors. Volatility refers to the tendency of financial markets to fluctuate suddenly and unpredictably, leading to significant gains or losses for investors.
Some of the factors that contribute to volatility in European financial markets add details to on changes in global economic lump, political uncertainty, changes in inclusion rates, and fluctuations in the value of major currencies such as the euro and the British pound.
Global Economic Growth
European financial markets are deeply dependent regarding global economic mount occurring, once many European countries heavily reliant upon exports to objective their economies. When global economic growth is sound, European financial markets tend to accomplish dexterously, once increased demand for European goods and facilities leading to far-off away ahead revenues for companies and increased voyager confidence.
However, considering global economic buildup slows, European financial markets can experience significant volatility, following shortened demand for European goods and services leading to deflate revenues for companies and shortened speculator confidence.
Political Uncertainty
Political uncertainty is unconventional significant factor contributing to volatility in European financial markets. Political instability, such as the Brexit vote in the UK or the recent election of adjacent to-creation parties in Italy, can create uncertainty for investors and gain to increased volatility in financial markets.
For example, the Brexit vote in June 2016 led to significant volatility in the British pound, once the currency depreciating immediately adjoining major currencies such as the euro and the US dollar. This led to increased volatility in the UK folder publicize, as investors shifted their funds towards more stable investments.
Interest Rates
Changes in immersion rates, both locally and globally, can moreover impact the volatility of European financial markets. When assimilation rates rise, investors tend to shift their funds towards hermetically sealed-allowance investments such as bonds, leading to a decrease in equity markets. Conversely, following than captivation rates decrease, investors tend to shift their funds towards equity markets, leading to increased volatility in the buildup push.
For example, the European Central Bank (ECB) shortened amalgamation rates to historic lows in tribute to the global financial crisis of 2008-2009. This cause problems led to increased volatility in European financial markets, bearing in mind investors seeking progressive returns by investing in riskier assets such as equities.
Currency Fluctuations
Fluctuations in the value of major currencies such as the euro and the British pound can impact the magnify of European financial markets, particularly in terms of investment flows and foreign portfolio investment.
For example, the value of the euro declined rapidly adjoining major currencies such as the US dollar in 2014-2015, leading to increased volatility in European financial markets. This was due in part to concerns following more the Greek debt crisis and the possibility of Greece exiting the eurozone, which led to edited speculator confidence and increased volatility in financial markets.