Sterling slumped to an eight-week low point Tuesday on Brexit concerns, while equities pulled back ahead of a much-anticipated Federal Reserve policy meeting.
Oil prices, meanwhile, tumbled on renewed concerns that OPEC's production cuts will fail to erase a global crude glut.
"European and US markets are suffering in a whirlwind of anxiety, with the impending Article 50 activation, Dutch elections, Fed rate hike and the issue of a second Scottish referendum all feeding into market uncertainty," said market analyst Joshua Mahony at online trading firm IG.
Sterling slid to $1.2110 at one point, the lowest level for two months.
"The reality of the UK’s divorce from Europe and two years of horse-trading to agree trade deals is beginning to spook the forex market," said Kathleen Brooks, research director at City Index.
British Prime Minister Theresa May made a major statement to parliament on Tuesday after MPs enabled her to start the withdrawal process from the European Union.
After weeks of wrangling, lawmakers on Monday finally granted May the right to trigger Article 50 of the EU's Lisbon Treaty, which would start the two-year divorce process with the bloc.
But she kept up the suspense over when she would trigger Brexit, saying she would have the power to do so within days and it would happen by the end of March.
The fall of the pound often lends support to London's benchmark FTSE 100 stocks index that features numerous multi-nationals earning in currencies other than the pound, but the drop in crude prices dragged down energy companies.
West Texas Intermediate (WTI) was down over $1.00 per barrel in afternoon trading in New York to $47.33, while Brent shed 82 cents to $50.53.
While OPEC said in its monthly report on Tuesday that oil producers had kept their promises to cut output, the market was spooked about the cartel's commitment to its production cuts as Saudi Arabia increased output last month.
Investors were also concerned about whether OPEC's production cuts will in fact reduce over-supply as the cartel increased its forecast for global output to take into account stepped-up production by US shale oil companies.
Elsewhere in Europe, there is unease about Wednesday's elections in the Netherlands, where far-right anti-EU nationalists are predicted to score well.
Elections in France and Germany later in the year are also keeping investors on edge, with populists in both countries threatening the status quo.
- Markets expect rate rise -
Investors were also watching the Fed, which on Tuesday begins its two-day policy meeting, with US stocks opening lower as investors tread cautiously ahead of the interest rate decision.
While a string of upbeat US economic readings in recent months has made a hike in rates on Wednesday an odds-on bet, there is uncertainty about its outlook beyond the meeting.
"Markets fully expect a rate rise, so market reaction is likely to be muted unless the Fed disappoints, which would lead to... a lower dollar," Mike Bell, global market strategist at JP Morgan Asset Management, wrote in a note to clients.
"All attention is likely to be focused on the press conference to see whether a more hawkish tone is struck" that could see further US rate rises this year.
In Asia on Tuesday, Tokyo's benchmark stocks index ended 0.1 percent lower.
But struggling industrial giant Toshiba reversed an earlier near-nine percent slide to end slightly higher after it was given approval to delay the release of its earnings results and said it was considering selling a majority stake of its loss-making US nuclear unit.
The firm had been hammered as news it would not release its numbers Tuesday raised fears it could be yanked from Japan's premier stock exchange.
The delay stems from an investigation into the US subsidiary, Westinghouse Electric, the Nikkei business daily said.
- Key figures around 1630 GMT -
London - FTSE 100: DOWN 0.1 percent at 7,357.85 points (close)
Frankfurt - DAX 30: DOWN 0.01 at 11,988.79 (close)
Paris - CAC 40: DOWN 0.5 percent at 4,974.26 (close)
EURO STOXX 50: DOWN 0.5 percent at 3,397.91
New York - Dow: DOWN 0.3 percent at 20,824.62
Tokyo - Nikkei 225: DOWN 0.1 percent at 19,609.50 (close)
Hong Kong - Hang Seng: FLAT at 23,827.95 (close)
Shanghai - Composite: UP 0.1 percent at 3239.33 (close)
Euro/dollar: DOWN at $1.0639 from $1.0654 Monday
Pound/dollar: DOWN at $1.2164 from $1.2222
Dollar/yen: DOWN at 114.55 yen from 114.86 yen
Oil - Brent North Sea: DOWN 82 cents at $50.53 per barrel
Oil - West Texas Intermediate: DOWN $1.07 at $47.33