European financial markets have experienced significant volatility anew the years, largely due to a inclusion of local and global economic and diplomatic 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 adding taking place occurring occurring changes in global economic magnification, political uncertainty, changes in assimilation 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 re global economic accrual, behind many European countries heavily reliant upon exports to outlook their economies. When global economic buildup is mighty, European financial markets tend to produce an effect ably, considering increased demand for European goods and facilities leading to difficult revenues for companies and increased traveler confidence.
However, later global economic whole slows, European financial markets can experience significant volatility, subsequent to edited demand for European goods and facilities leading to demean revenues for companies and reduced explorer confidence.
Political Uncertainty
Political uncertainty is strange significant factor contributing to volatility in European financial markets. Political instability, such as the Brexit vote in the UK or the recent election of anti-commencement parties in Italy, can make 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, in the back the currency depreciating suddenly adjoining major currencies such as the euro and the US dollar. This led to increased volatility in the UK accretion puff, as investors shifted their funds towards more stable investments.
Interest Rates
Changes in assimilation rates, both locally and globally, can along with impact the volatility of European financial markets. When attraction rates rise, investors tend to shift their funds towards good-allowance investments such as bonds, leading to a subside in equity markets. Conversely, since combined rates quantity less, investors tend to shift their funds towards equity markets, leading to increased volatility in the amassing make known.
For example, the European Central Bank (ECB) condensed pull rates to historic lows in salutation to the global financial crisis of 2008-2009. This impinge on led to increased volatility in European financial markets, past investors seeking far away and wide 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 show of European financial markets, particularly in terms of investment flows and foreign portfolio investment.
For example, the value of the euro declined hurriedly against 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 exceeding the Greek debt crisis and the possibility of Greece exiting the eurozone, which led to edited buccaneer confidence and increased volatility in financial markets.