The euro retreated against the dollar Thursday as economic data pointed to increased prospects of recession in Europe, while Wall Street stocks finished higher following another volatile session.
US stocks overcame a midday sag as Federal Reserve Chair Jerome Powell, in a second day of testimony on Capitol Hill, downplayed the idea that government pandemic aid was the key factor fueling US inflation as he continued to vow a tough response to inflation.
But Karl Haeling of LBBW said markets have "significantly shifted rate hike expectations" over the last week as recession chatter has grown. Investors now anticipate the United States will be essentially finished with rate hikes in 2022 rather than in 2023.
The broad-based S&P 500 finished up one percent.
Meanwhile, economic growth in the eurozone plummeted in June, a key survey showed, as high prices took the wind out the strong recovery from the deep lows of the coronavirus pandemic.
The closely-watched monthly purchasing managers' index by S&P Global slumped to 51.9 from 54.8 in May. A figure above 50 indicates growth.
PMI data also revealed that Britain's private sector business activity is languishing at its lowest level for more than a year on decades-high inflation.
"The latest PMI numbers from France and Germany have weighed on the euro, with economic activity slowing more than expected in June, raising concerns that both countries are heading into a recession," said market analyst Michael Hewson at CMC Markets.
"While ECB (European Central Bank) policymakers continue to insist that a recession isn't their base case, all the evidence points to exactly that," he added.
European stocks also fell, with London ending the day down 1.0 percent and Paris shedding 0.6 percent. Frankfurt tumbled 1.8 percent after Germany hiked its alert level about natural gas supplies, taking it one step closer to rationing.
Government bond yields also fell in another indication that investors are more worried about the prospect of a recession, removing some of the financial sting on governments from rising interest rates.
Commentators have warned for some time that the world economy could be heading for contracting growth owing to the sharp increase in global interest rates aimed at cooling inflation.
The prospect of a retreat in the global economy continued to drag on oil prices as traders fretted over slowing demand.
Brent and WTI, the international and US benchmarks, have slumped over the past week, even with sanctions on Russian crude exports and China's gradual reopening from lockdowns.
Adding to the selling of crude was data Wednesday indicating a jump in US stockpiles.
- Key figures at around 1530 GMT -
Euro/dollar: DOWN at $1.0526 from $1.0566 late Wednesday
Pound/dollar: DOWN at $1.2259 from $1.2266
Euro/pound: DOWN at 85.80 pence from 86.14 pence
Dollar/yen: DOWN at 134.94 yen from 136.26 yen
New York - Dow: UP 0.6 percent at 30,677.36 (close)
New York - S&P 500: UP 1.0 percent at 3,795.73 (close)
New York - Nasdaq: UP 1.6 percent at 11,232.19 (close)
London - FTSE 100: DOWN 1.0 percent at 7,020.45 (close)
Frankfurt - DAX: DOWN 1.8 percent at 12,912.59 (close)
Paris - CAC 40: DOWN 0.6 percent at 5,883.33 (close)
EURO STOXX 50: DOWN 0.8 percent at 3,436.29 (close)
Tokyo - Nikkei 225: UP 0.1 percent at 26,171.25 (close)
Hong Kong - Hang Seng Index: UP 1.3 percent at 21,273.87 (close)
Shanghai - Composite: UP 1.6 percent at 3,320.15 (close)
Brent North Sea crude: DOWN 1.5 percent at $110.05 per barrel
West Texas Intermediate: DOWN 1.8 percent at $104.27 per barrel