European stock markets recovered from initial falls on Wednesday, as traders awaited another hefty US interest rate hike from the Federal Reserve.
The dollar reached the highest level in 20 years against a basket of major rival currencies with investors seeking safety as Russia escalates operations over Ukraine.
The Dollar index, which compares the US unit against currencies including the euro, pound and yen, jumped to 110.87 points, also as the Fed prepares a third successive jumbo rate hike to combat decades-high inflation.
The British pound hit a new 37-year low at $1.1305, even as the Bank of England prepares to announce its own large interest rate hike on Thursday.
"The Fed is having to be cruel in order to restore price stability," noted Russ Mould, investment director at AJ Bell. "Higher rates will cause pain to households and businesses, with the jobs market being closely watched for signs of redundancies and hiring freezes."
Higher rates will cause pain to households and businesses, with the jobs market being closely watched for signs of redundancies and hiring freezes- Russ Mould, investment director at AJ Bell.
Most analysts are predicting that the Fed will announce another 75 basis-point lift, though some have tipped a full percentage-point move.
In the event of no surprises, the US central bank's forecast and post-meeting comments from boss Jerome Powell will be the main attraction for investors.
"Volumes remain light and the mood cautious, with few looking to take on large positions before hearing what the Fed says," according to Fiona Cincotta at City Index trading group.
Other central banks are meeting this week. On Tuesday, officials in Sweden surprised markets by unveiling a one percentage-point hike.
Adding to the cautious mood was Vladimir Putin's announcement of a "partial mobilisation" as Russia's president upped the ante in his battle against Ukraine. Putin said he would annex the territories his forces had occupied and backed referendums in four regions in Russian-held parts of Ukraine.
"We will definitely use all means available" to protect Russian territory, he warned, adding: "That's not a bluff."
The moves mark an escalation in the seven-month war, which has roiled markets and sparked an energy crisis.
Oil prices surged nearly three per cent on Wednesday, having wilted in recent months on weaker demand expectations fuelled by recession fears.
Putin's announcement and possible escalation in the war "raises a whole new set of uncertainties", Rabobank's Jane Foley said.
Asian stock markets closed lower on Wednesday, reversing Tuesday's bounce.