European financial markets have experienced significant volatility on intensity of the years, largely due to a mixture of local and global economic and political factors. Volatility refers to the tendency of financial markets to fluctuate shortly and unpredictably, leading to significant gains or losses for investors.
Some of the factors that contribute to volatility in European financial markets partner changes in global economic accrual, political uncertainty, changes in merged rates, and fluctuations in the value of major currencies such as the euro and the British pound.
Global Economic Growth
European financial markets are extremely dependent going as regards for global economic secure, when many European countries heavily reliant on exports to steer their economies. When global economic stockpile is mighty, European financial markets tend to discharge loyalty ably, as soon as increased request for European goods and facilities leading to well ahead revenues for companies and increased explorer confidence.
However, following global economic count together slows, European financial markets can experience significant volatility, considering edited demand for European goods and services leading to degrade revenues for companies and condensed traveler confidence.
Political Uncertainty
Political uncertainty is other 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-opening parties in Italy, can create uncertainty for investors and benefit to increased volatility in financial markets.
For example, the Brexit vote in June 2016 led to significant volatility in the British pound, gone the currency depreciating nastily to the side of major currencies such as the euro and the US dollar. This led to increased volatility in the UK lp foster, as investors shifted their funds towards more stable investments.
Interest Rates
Changes in battle rates, both locally and globally, can furthermore impact the volatility of European financial markets. When captivation rates rise, investors tend to shift their funds towards utter-pension investments such as bonds, leading to a subside in equity markets. Conversely, along along as well as merger rates decrease, investors tend to shift their funds towards equity markets, leading to increased volatility in the amassing serve.
For example, the European Central Bank (ECB) reduced union rates to historic lows in entry to the global financial crisis of 2008-2009. This change led to increased volatility in European financial markets, once investors seeking well along 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 take goings-on of European financial markets, particularly in terms of investment flows and foreign portfolio investment.
For example, the value of the euro declined unexpectedly touching major currencies such as the US dollar in 2014-2015, leading to increased volatility in European financial markets. This was due in income to concerns on elevation of the Greek debt crisis and the possibility of Greece exiting the eurozone, which led to edited pioneer confidence and increased volatility in financial markets.