The dollar surged to a three-month high and European and Asian stock markets dipped on Thursday as expectations hardened of the first rise in U.S. interest rates in almost a decade coming next month.
Federal Reserve chief Janet Yellen and two senior colleagues pointed to December as a "live possibility" for a rise, adding to signs that the U.S. central bank is again on the verge of moving after months of vacillating over the domestic and global economy's ability to deal with higher borrowing costs.
An adverse reaction from global markets to September's policy meeting put the Fed off raising rates when many had expected it to, but there have been some signs this time that investors have grown more sanguine about the likely fallout.
European stocks, after gaining initially on another batch of upbeat corporate results, were down 0.1-0.3 percent.
"Markets are still digesting what Yellen said yesterday and whether it means multiple rate hikes ahead," Peregrine and Black trader, Markus Huber, said.
"A December rate hike seems to be very likely now again. Investors are also taking a little bit of money off the table as well ahead of tomorrow's non-farm payrolls."
Money-market pricing showed a greater than 50-percent chance of a rate rise next month and the dollar index, which tracks the greenback against six major currencies, rose 0.15 percent to 98.135, after an 0.8 percent jump on Wednesday.
Currency analysts and traders say many speculative and longer-term players have weighed in this week behind another run higher for the dollar, after a stuttering performance over the past six months.
It rose as high as $1.0834 per euro on Thursday before steadying.
Some of the Asian markets most exposed to a rise in U.S. interest rates had followed Wall Street lower overnight after Yellen's comments. But Shanghai, where a boom in borrowing in dollars makes companies among the most at risk from higher dollar rates, rose about 2 percent.
The crunch now will be U.S. data over the next few weeks. U.S. data on Wednesday supported Yellen's guarded optimism, with private employers hiring steadily in October and a jump in new orders buoying activity in the services sector.
Influential non-farm payroll numbers are due on Friday.
According to data from Thomson Reuters StarMine, 50 percent of European companies reporting so far this quarter have met or beaten analysts' earnings forecasts.
European stock and bond markets are also increasingly sure that the European Central Bank will do the opposite to the Fed and pump yet more cash into the euro zone economy next month.
The gap between U.S. and German two-year bond yields spread to its widest levels in nine years, emphasising the diverging outlook for policy on either side of the Atlantic. Yields on U.S. two-year notes rose to their highest in 4-1/2 years.
"It looks like we have to seriously prepare for the prospect of the two major central banks embarking on opposing paths of monetary policy in December," ING's senior rate strategist Martin van Vliet said.
On oil markets, Brent crude futures steadied, up 0.7 percent on the day at $48.95 per barrel after falling from Tuesday's three-week high of $50.91.