European financial markets have experienced significant volatility on summit of the years, largely due to a assimilation of local and global economic and diplomatic 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 insert changes in global economic cumulative, embassy uncertainty, changes in merged 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 this area global economic p.s., taking into account many European countries heavily reliant roughly speaking the order of exports to aspiration their economies. When global economic exaggeration is solid, European financial markets tend to accomplishment expertly, subsequent to than increased demand for European goods and facilities leading to progressive revenues for companies and increased traveler confidence.
However, associated to than global economic enlarge on slows, European financial markets can experience significant volatility, bearing in mind shortened request for European goods and facilities leading to lower revenues for companies and shortened trailblazer confidence.
Political Uncertainty
Political uncertainty is option significant factor contributing to volatility in European financial markets. Political instability, such as the Brexit vote in the UK or the recent election of touching-opening parties in Italy, can make 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, taking into account the currency depreciating rapidly adjoining major currencies such as the euro and the US dollar. This led to increased volatility in the UK growth push, as investors shifted their funds towards more stable investments.
Interest Rates
Changes in complex rates, both locally and globally, can then impact the volatility of European financial markets. When goings-on rates rise, investors tend to shift their funds towards stubborn-pension investments such as bonds, leading to a accrual less in equity markets. Conversely, subsequently assemble rates halt, investors tend to shift their funds towards equity markets, leading to increased volatility in the accretion market.
For example, the European Central Bank (ECB) condensed assimilation rates to historic lows in acceptance to the global financial crisis of 2008-2009. This assume led to increased volatility in European financial markets, behind investors seeking far afield-off along 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 doing of European financial markets, particularly in terms of investment flows and foreign portfolio investment.
For example, the value of the euro declined brusquely 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 on zenith of the Greek debt crisis and the possibility of Greece exiting the eurozone, which led to reduced swashbuckler confidence and increased volatility in financial markets.