London (AFP) - Eurozone stocks and the euro slid on Thursday as the European Central Bank warned of more interest rate hikes and a possible recession to get a grip on soaring inflation.
Meanwhile, the pound remained close to a 37-year low against the dollar that was struck Wednesday, as new British Prime Minister Liz Truss announced that she will freeze domestic fuel bills for two years to help ease the burden of a UK cost-of-living crisis.
The ECB warned that inflation was "far too high" and likely to stay above target for "an extended period" as it announced its record 0.75 percentage point hike.
The euro whipped around parity but then slid back as ECB chief Christine Lagarde began her post-meeting press conference where she made clear interest rates were far from where they need be to bring inflation down.
"We actually took the decision today that we would continue to raise interest rates...because we believe that we are far away from the rate at which we hope we'll see inflation return to the two percent medium term target," she said.
Lagarde also warned the eurozone risks recession if Russia completely cuts off gas, which it has nearly done.
"The ECB made it clear that they were not going to let the prospect of a looming recession stand in the way of trying to control inflation with aggressive rate increases..." said City Index and FOREX.com analyst Fawad Razaqzada.
Eurozone stocks, which had been holding steady before the ECB decision, slid lower.
Wall Street stocks fell at the opening bell after the latest unemployment data showed a drop in first-time claims for benefits, which strengthens the case for another sharp hike in interest rates by the Federal Reserve.
"The key takeaway from the report remains the same: initial claims are running at levels indicative of a tight labor market that is still running against the grain of the Fed's policy aim," said Patrick J. O'Hare at Briefing.com.
The Fed has made it clear it plans to continue to aggressively raise interest rates to rein in surging inflation, even at the cost of causing some economic pain.
Fed chief Jerome Powell reiterated that message on Thursday.
"We need to act now forthrightly, strongly as we have been doing and we need to keep at it until the job is done to avoid ...the kind of very high social costs" of the surge in inflation in the 1970s and 1980s, Powell said.
The dollar has moved ever higher against its major peers in recent weeks as investors flood into the currency hoping for better returns as the Fed raises rates and as they seek a haven in the face of economic turmoil.
The US unit is closing in on a 32-year peak against the yen owing to the Bank of Japan's refusal to raise interest rates.
It recently set a 20-year peak against the dollar and hasn't been this strong against the pound since 1985.
Observers expect the dollar to keep attracting strong interest as long as the Federal Reserve keeps ramping up US interest rates by sizeable amounts.
The Fed holds its next policy meeting on September 21, with a third successive 75-basis-point lift forecast.
Key figures at around 1330 GMT
London - FTSE 100: DOWN 0.7 percent at 7,184.97 points
Frankfurt - DAX: DOWN 1.6 percent at 12,706.08
Paris - CAC 40: DOWN 1.0 percent at 6,043.65
EURO STOXX 50: DOWN 1.2 percent at 3,458.94
New York - Dow: DOWN 0.7 percent at 31,364.70
Tokyo - Nikkei 225: UP 2.3 percent at 28,065.28 (close)
Hong Kong - Hang Seng Index: DOWN 1.0 percent at 18,854.62 (close)
Shanghai - Composite: DOWN 0.3 percent at 3,235.59 (close)
Euro/dollar: DOWN at $0.9959 from $1.0012 on Wednesday
Pound/dollar: DOWN at $1.1425 from $1.1535
Euro/pound: UP at 86.81 pence from 86.74 pence
Dollar/yen: UP at 144.25 yen from 143.79 yen
West Texas Intermediate: UP 1.5 percent at $83.14 per barrel
Brent North Sea crude: UP 1.1 percent at $88.92 per barrel
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