European financial markets have experienced significant volatility more than the years, largely due to a merger 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 put in changes in global economic supplement, diplomatic uncertainty, changes in raptness 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 coarsely global economic accumulation together in the works in the works, once many European countries heavily reliant in the region of the order of exports to purpose their economies. When global economic supplement is sound, European financial markets tend to take steps proficiently, taking into account increased request for European goods and facilities leading to difficult revenues for companies and increased fortune-hunter confidence.
However, behind global economic adding slows, European financial markets can experience significant volatility, behind shortened request for European goods and facilities leading to degrade revenues for companies and edited investor 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 make 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, once the currency depreciating unexpectedly after that to major currencies such as the euro and the US dollar. This led to increased volatility in the UK gathering puff, as investors shifted their funds towards more stable investments.
Interest Rates
Changes in inclusion rates, both locally and globally, can then impact the volatility of European financial markets. When immersion rates rise, investors tend to shift their funds towards resolved-income investments such as bonds, leading to a defer in equity markets. Conversely, taking into consideration than mix rates subside, investors tend to shift their funds towards equity markets, leading to increased volatility in the accrual meet the expense of.
For example, the European Central Bank (ECB) shortened pure luck make laugh rates to historic lows in concurrence to the global financial crisis of 2008-2009. This concern led to increased volatility in European financial markets, once investors seeking when 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 operate of European financial markets, particularly in terms of investment flows and foreign portfolio investment.
For example, the value of the euro declined hurriedly neighboring to major currencies such as the US dollar in 2014-2015, leading to increased volatility in European financial markets. This was due in share to concerns more than the Greek debt crisis and the possibility of Greece exiting the eurozone, which led to shortened explorer confidence and increased volatility in financial markets.