The pound tumbled against the dollar and global stocks mostly fell Thursday as the Bank of England announced another jumbo-sized interest rate hike while warning of a prolonged recession expected to last through mid-2024.
The BoE's move came a day after the Federal Reserve also made another big rate increase and warned of more ahead, lifting the dollar.
Fed Chair Jerome Powell news conference Wednesday was seen as more hawkish than expected, as he said it was very premature to talk about pausing the rate hikes.
"The message from Fed Chair Powell yesterday was a downer for the stock market," said Briefing.com analyst Patrick O'Hare.
The Fed's latest 0.75 percentage point interest rate hike Wednesday, was followed by the BoE increase of the same size.
Minutes of the BoE meeting warned of a "challenging outlook for the UK economy" that was "expected to be in recession for a prolonged period," dealing a blow to Britain's troubled government.
"It is a tough road ahead," BoE governor Andrew Bailey told a press conference.
"The sharp increase in energy prices caused by Russia's invasion of Ukraine has made us poorer as a nation."
The pound fell by two percent against the dollar, while also retreating against the euro.
"A typical textbook trade is out of the window because currencies usually move higher when a central bank increases rates," noted Naeem Aslam, chief market analyst at Avatrade.
"Tough times are ahead, and we are going to see the economy, markets, and the currency tanking in the coming months."
Major US stock indices retreated for a fourth straight session as markets awaited Friday's US employment report.
A survey of the US services industry showed activity at its weakest level since May 2020, as new orders eased and businesses struggled to replenish their stocks.
Elsewhere, oil prices also fell heavily on Thursday as aggressive rate hikes increase expectations of a global recession and softer demand for energy.
Hong Kong led stock market losses as the city's central bank hiked rates in line with the Fed, owing to their policy link via the dollar peg.
Traders gave back a chunk of the previous two days' gains, which came on the back of speculation China was planning to roll back some of its painful zero-Covid policies.
Adding to the selling was confirmation from Beijing's health authority that it intended to stick to the strategy.
- Key figures around 2050 GMT -
New York - Dow: DOWN 0.5 percent at 32,001.25 (close)
New York - S&P 500: DOWN 1.1 percent at 3,719.89 (close)
New York - Nasdaq: DOWN 1.7 percent at 10,342.94 (close)
London - FTSE 100: UP 0.6 percent at 7,188.63 (close)
Frankfurt - DAX: DOWN 1.0 percent at 13,130.19 (close)
Paris - CAC 40: DOWN 0.5 percent at 6,243.28 (close)
EURO STOXX 50: DOWN 0.8 percent at 3,593.18 (close)
Hong Kong - Hang Seng Index: DOWN 3.1 percent at 15,339.49 (close)
Shanghai - Composite: DOWN 0.2 percent at 2,997.81 (close)
Tokyo - Nikkei 225: Closed for a holiday
Pound/dollar: DOWN at $1.1160 from $1.1392 Wednesday
Euro/dollar: DOWN at $0.9751 from $0.9818
Dollar/yen: UP at 148.25 yen from 147.90 yen
Euro/pound: UP at 87.73 pence from 86.19 pence
Brent North Sea crude: DOWN 1.5 percent at $94.67 per barrel
West Texas Intermediate: DOWN 2.0 percent at $88.17 per barrel