European equities fell on Wednesday with traders on edge before key June inflation data in the United States.
The London stock market sank by nearly one per cent, around half-way through the session, despite news of rebounding UK economic growth in May.
Eurozone stocks were down by about one per cent after a mixed close in Asia.
The euro clawed back slightly, one day after hitting dollar parity for the first time in two decades on concerns about a possible recession in the eurozone.
Oil rebounded slightly having fallen sharply on Tuesday on weaker demand expectations.
Tenterhooks
"Markets are on tenterhooks ahead of the US inflation data which will hold great sway over the Fed's rate-hike plans," said Exinity Markets analyst Han Tan. "A fresh four-decade high, along with more signs of unabating inflationary pressures, may well force the Fed to punch harder and faster in its battle against runaway consumer prices."
Markets are on tenterhooks ahead of the US inflation data which will hold great sway over the Fed's rate-hike plans- Exinity Markets analyst Han Tan
Markets fear more evidence of red-hot US inflation will prompt the Fed to keep hiking interest rates aggressively after it ramped up borrowing costs by three-quarters of a percentage point last month.
US inflation had spiked to a four-decade high of 8.6 per cent in May.
Inflation is soaring worldwide after economies reopened from pandemic lockdowns and as the Ukraine war keeps energy prices elevated.
In a further sign of the pressure being felt around the world, the New Zealand and South Korean central banks each lifted interest rates by 0.5 percentage points on Wednesday. It was the steepest increase by Seoul since 1999.
Europe gas crisis
The euro held above $1 a day after hitting parity for the first time since late 2002, as a worsening energy crisis fanned expectations that the eurozone would plunge into recession.
With Russian energy giant Gazprom starting 10 days of maintenance on Monday on its Nord Stream 1 pipeline, the bloc – and particularly gas-reliant Germany – is waiting nervously to see if the taps are turned back on.
The single currency has been hit also by the European Central Bank's reluctance to raise rates – in contrast to monetary policy elsewhere.
"A prolonged cut to the gas supply would halt a lot of economic activity, sending (Germany) deep into recession," said Tapas Strickland at National Australia Bank. He said July 21 – when the gas should be switched back on – will be a crucial date. "That date also happens to be the day of the next ECB meeting," Strickland added. "Either of these events are key risk events. Russia playing gas politics by not switching on the gas supply would likely see the euro lurch much lower."