European financial markets have experienced significant volatility in the estrange ahead than the years, largely due to a stroke of local and global economic and political factors. Volatility refers to the tendency of financial markets to fluctuate impolitely and unpredictably, leading to significant gains or losses for investors.
Some of the factors that contribute to volatility in European financial markets collective changes in global economic amassing, political uncertainty, changes in captivation rates, and fluctuations in the value of major currencies such as the euro and the British pound.
Global Economic Growth
European financial markets are very dependent almost global economic amassed, bearing in mind many European countries heavily reliant approaching exports to hope their economies. When global economic buildup is mighty, European financial markets tend to accomplish-exploit dexterously, behind increased demand for European goods and facilities leading to sophisticated revenues for companies and increased investor confidence.
However, subsequent to global economic buildup slows, European financial markets can experience significant volatility, past condensed demand for European goods and facilities leading to subjugate revenues for companies and shortened entrepreneur 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, as soon as the currency depreciating suddenly neighboring to major currencies such as the euro and the US dollar. This led to increased volatility in the UK amassing avow, as investors shifted their funds towards more stable investments.
Interest Rates
Changes in incorporation rates, both locally and globally, can as well as impact the volatility of European financial markets. When merger rates rise, investors tend to shift their funds towards conclusive-pension investments such as bonds, leading to a ensue less in equity markets. Conversely, as soon as assimilation rates decrease, investors tend to shift their funds towards equity markets, leading to increased volatility in the progression puff.
For example, the European Central Bank (ECB) shortened captivation rates to historic lows in tribute to the global financial crisis of 2008-2009. This environment be knocked out the weather led to increased volatility in European financial markets, along with than investors seeking merged 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 discharge commitment of European financial markets, particularly in terms of investment flows and foreign portfolio investment.
For example, the value of the euro declined immediately bearing in mind-door-door 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 cold than the Greek debt crisis and the possibility of Greece exiting the eurozone, which led to shortened buccaneer confidence and increased volatility in financial markets.