European stocks and the euro retreated on Wednesday as the EU took precautionary measures in the face of reduced Russian gas supplies.
Traders were also looking ahead to a key ECB meeting on Thursday.
European assets headed south despite sizeable gains in Asia and Tuesday's surge on Wall Street.
US stocks rebounded strongly on Tuesday as companies' earnings soothed concerns about the impact on their bottom lines from soaring inflation and rising interest rates.
While several firms – such as Apple and Johnson & Johnson – have indicated they have concerns about the outlook, there is a feeling that the sell-off across markets could be reaching a bottom.
And some commentators have suggested the second half could see a healthy rally, despite official data continuing to show inflation rising strongly worldwide.
UK annual inflation hit a new 40-year high at 9.4 per cent in June on surging motor fuel and food prices.
The same month, inflation in South Africa soared to its highest level in 13 years at 7.4 per cent.
Against a backdrop of decades-high inflation also in the eurozone, all eyes were on the European Central Bank, which is Thursday widely expected to announce its first rate hike in more than a decade.
Officials have their work cut out for them as they must also try not to drive a stake through the eurozone economy, which has also been hammered by an energy crisis.
ECB officials have their work cut out for them as they must also try not to drive a stake through the eurozone economy, which has also been hammered by an energy crisis
Talk of a half-point hike – instead of the quarter-point lift most expect – has boosted the euro against the dollar since last week falling below parity for the first time in 20 years.
The European single currency had risen earlier on Wednesday, helped also by a Bloomberg News article saying Russia's Gazprom would resume deliveries through the Nord Stream 1 pipeline on Thursday, albeit at reduced capacity.
Moscow shut down deliveries to Germany for technical reasons last week, but there had been fears it would keep the taps off in retaliation for European sanctions over its invasion of Ukraine.
Taking no chances, the European Commission on Wednesday urged EU countries to reduce their demand for natural gas by 15 per cent over the coming winter months to overcome Russia's energy supply "blackmail".
In a statement, the EU's executive arm also asked member states to give it special powers to force through needed demand cuts if Russia cuts the Europe's gas lifeline.
"Russia is blackmailing us. Russia is using energy as a weapon and therefore, in any event, whether it's a partial major cut off of Russian gas or total cut off... Europe needs to be ready," Commission president Ursula von der Leyen told reporters.