A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying Japan's Nikkei index and various countries' stock market index prices outside a brokerage in Tokyo, Japan, February 22, 2022.
A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying Japan's Nikkei index and various countries' stock market index prices outside a brokerage in Tokyo, Japan, February 22, 2022. Reuters / KIM KYUNG-HOON

The euro dropped to its weakest since 2017 on Wednesday after Russia halted gas supplies to Bulgaria and Poland amid rising investor concerns for the regional economy, while stocks staged a small rebound after a mixed bag of corporate earnings.

Russia's decision to cut the gas flow to Bulgaria and Poland for rejecting its demand to pay in roubles took direct aim at European economies and add to the euro's woes - giving investors more reasons to snap up U.S. dollars.

The dollar has surged more than 4% in April and is on course for its best month since January 2015, propelled by mounting expectations for the Federal Reserve to hike interest rates aggressively in coming months and for the U.S. economy to hold up better than the euro zone.

Investors have been dumping the euro and on Wednesday it dropped below $1.06 with another half a percent fall. Analysts say the European common currency is being buffeted by the war in Ukraine and growing concerns that the bloc's economy will fall into recession this year.

"The euro's blatant inability to rally on hawkish comments by European Central Bank members means lingering vulnerability to an external environment negatively affected by an ever-concerning situation in Ukraine and generalised USD strength," ING FX strategists wrote in a note to clients.

The euro traded as low as $1.0586 before recovering to just above $1.06. The dollar index, which measures the U.S. currency against a basket of rivals, rose as much as 0.5% to 102.78, its strongest since March 2020 when a COVID 19-induced market slump sent investors scrambling for dollars.

European stocks initially fell before rebounding modestly, helped by a recovery on Wall Street futures markets that followed Tuesday's sharp drops. On Tuesday the tech-heavy Nasdaq 100 closed down 3.3%, its lowest level since late 2020.

News that Russia had stopped gas supplies to Poland and Bulgaria earlier sent the MSCI world equity index to a 13-month low.

By 1100 GMT, the Euro STOXX 600 was up 0.97%, while Germany's DAX rose 0.56%. Britain's FTSE 100 climbed 0.96%.

A mixed set of corporate earnings, including Google parent Alphabet Inc reporting its first quarterly revenue miss of the pandemic while Microsoft forecast double-digit revenue growth for the next fiscal year, also weighed on investor sentiment overnight.

European corporate earnings released on Wednesday were also mixed. Credit Suisse reported another quarterly loss and Deutsche Bank warned that the Russia-Ukraine conflict could hurt annual earnings.

Investors have been focusing on results from some of Wall Street's biggest names this week, hoping they could provide a counterweight to the deluge of negative news that has pounded stocks.

CHINESE REBOUND

There was more selling in Asia, with MSCI's broadest index of Asia-Pacific shares outside Japan down 0.75% and earlier reaching its lowest level since mid-March. Tokyo's Nikkei fell 1.17%.

Australian shares lost 0.78% as inflation hit a 20-year high, bringing interest rate rises closer.

Battered Chinese stocks bucked the trend, gaining almost 3% as sentiment received a short-term boost from data showing profits at industrial firms grew at a faster pace in March than a year earlier.

China stocks fell to their lowest in two years on Tuesday on fears that persistent COVID lockdowns would weigh heavily on economic activity and disrupt global supply chains.

Worries about the war in Ukraine and its impact on energy markets continue to rattle investors.

Russia's move to halt gas supplies to Poland and Bulgaria from Wednesday, viewed as a major escalation in response to Western sanctions against Moscow over its invasion of Ukraine, sent oil and gas prices higher, though not by much.

Brent crude futures were last up just 0.15% to $105.15. Brent crude prices had reached $140 in early March. U.S. West Texas Intermediate crude futures gained 0.18% to $101.88.

In currency markets, a dominant dollar left sterling and the Japanese yen nursing losses, although the pound later rebounded from 21-month lows.

"The U.S. dollar benefits from the prospect of an ongoing flight to safety liquidity bid," said Jeremy Stretch, head of G10 FX strategy at CIBC.

Gold prices weakened, with the spot price last at $1,897, down 0.48% on the day.