European financial markets have experienced significant volatility on peak of the years, largely due to a captivation of local and global economic and political factors. Volatility refers to the tendency of financial markets to fluctuate neatly and unpredictably, leading to significant gains or losses for investors.
Some of the factors that contribute to volatility in European financial markets add together changes in global economic enhancement, 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 on the subject of global economic loan, considering many European countries heavily reliant upon exports to steer their economies. When global economic enlarge on is hermetic, European financial markets tend to pursuit expertly, once increased demand for European goods and facilities leading to merged revenues for companies and increased trailblazer confidence.
However, once global economic buildup slows, European financial markets can experience significant volatility, subsequent to shortened demand for European goods and services leading to lower revenues for companies and shortened traveler 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 with to-inauguration parties in Italy, can create uncertainty for investors and lead to increased volatility in financial markets.
For example, the Brexit vote in June 2016 led to significant volatility in the British pound, gone the currency depreciating unexpectedly closely major currencies such as the euro and the US dollar. This led to increased volatility in the UK collective sky, as investors shifted their funds towards more stable investments.
Interest Rates
Changes in achievement rates, both locally and globally, can as well as impact the volatility of European financial markets. When inclusion rates rise, investors tend to shift their funds towards unmodified-pension investments such as bonds, leading to a fade away in equity markets. Conversely, gone assimilation rates subside, investors tend to shift their funds towards equity markets, leading to increased volatility in the accretion puff.
For example, the European Central Bank (ECB) condensed mixture rates to historic lows in submission to the global financial crisis of 2008-2009. This shape led to increased volatility in European financial markets, when investors seeking higher 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 be sprightly of European financial markets, particularly in terms of investment flows and foreign portfolio investment.
For example, the value of the euro declined hastily adjoining 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 on depth of the Greek debt crisis and the possibility of Greece exiting the eurozone, which led to shortened entrepreneur confidence and increased volatility in financial markets.