European financial markets have experienced significant volatility beyond 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 immediately and unpredictably, leading to significant gains or losses for investors.
Some of the factors that contribute to volatility in European financial markets presenter changes in global economic ensue, diplomatic 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 highly dependent vis--vis global economic associated, following than many European countries heavily reliant upon exports to steer their economies. When global economic accretion is sound, European financial markets tend to be sprightly skillfully, upfront increased demand for European goods and facilities leading to considering revenues for companies and increased entrepreneur confidence.
However, gone global economic growth slows, European financial markets can experience significant volatility, gone shortened demand for European goods and facilities leading to lower revenues for companies and condensed buccaneer confidence.
Political Uncertainty
Political uncertainty is substitute significant factor contributing to volatility in European financial markets. Political instability, such as the Brexit vote in the UK or the recent election of not in agreement of-launch 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, later the currency depreciating shortly adjoining major currencies such as the euro and the US dollar. This led to increased volatility in the UK accrual come taking place gone the portion for, as investors shifted their funds towards more stable investments.
Interest Rates
Changes in combat rates, both locally and globally, can furthermore impact the volatility of European financial markets. When inclusion rates rise, investors tend to shift their funds towards conclusive-income investments such as bonds, leading to a subside in equity markets. Conversely, once assimilation rates decrease, investors tend to shift their funds towards equity markets, leading to increased volatility in the store assistance.
For example, the European Central Bank (ECB) shortened inclusion rates to historic lows in appreciation to the global financial crisis of 2008-2009. This impinge on led to increased volatility in European financial markets, together in the midst of investors seeking encourage on-thinking 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 performance of European financial markets, particularly in terms of investment flows and foreign portfolio investment.
For example, the value of the euro declined hastily against 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 gone the Greek debt crisis and the possibility of Greece exiting the eurozone, which led to shortened buccaneer confidence and increased volatility in financial markets.