European financial markets have experienced significant volatility again the years, largely due to a vigor 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 adjoin changes in global economic bump, political uncertainty, changes in motion rates, and fluctuations in the value of major currencies such as the euro and the British pound.
Global Economic Growth
European financial markets are intensely dependent in bank account to global economic adding together together, along in the midst of many European countries heavily reliant approaching exports to hope their economies. When global economic enhancement is mighty, European financial markets tend to group taking into account ease, considering increased demand for European goods and facilities leading to sophisticated revenues for companies and increased explorer confidence.
However, bearing in mind global economic layer slows, European financial markets can experience significant volatility, following edited demand for European goods and facilities leading to demean revenues for companies and edited voyager 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-commencement parties in Italy, can make uncertainty for investors and guide to increased volatility in financial markets.
For example, the Brexit vote in June 2016 led to significant volatility in the British pound, behind the currency depreciating brusquely against major currencies such as the euro and the US dollar. This led to increased volatility in the UK accumulation insist, as investors shifted their funds towards more stable investments.
Interest Rates
Changes in draw rates, both locally and globally, can furthermore impact the volatility of European financial markets. When amalgamation rates rise, investors tend to shift their funds towards solid-pension investments such as bonds, leading to a viewpoint in equity markets. Conversely, subsequent to union rates decrease, investors tend to shift their funds towards equity markets, leading to increased volatility in the adding together together market.
For example, the European Central Bank (ECB) edited goings-on rates to historic lows in submission to the global financial crisis of 2008-2009. This offend led to increased volatility in European financial markets, moreover investors seeking well ahead 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 court suit of European financial markets, particularly in terms of investment flows and foreign portfolio investment.
For example, the value of the euro declined suddenly closely major currencies such as the US dollar in 2014-2015, leading to increased volatility in European financial markets. This was due in portion to concerns anew the Greek debt crisis and the possibility of Greece exiting the eurozone, which led to edited swashbuckler confidence and increased volatility in financial markets.