Global stocks mostly fell Tuesday ahead of key congressional testimony by Federal Reserve Chair Jerome Powell, while the dollar advanced again on anticipation the commentary could be less dovish than expected.
Powell is set to testify Wednesday in what will be his first extensive public appearance since a strong June jobs report dampened expectations for aggressive Fed action.
Futures markets still overwhelmingly believe the Fed will cut later this month but expectations have shifted to a smaller interest rate decrease than had been contemplated prior to the jobs data.
Some analysts also think there is a decent chance the Fed will not cut at all.
"Today, the big question is: will the Fed cut in July or not?" said Adam Sarhan, 50 Park Investments. "The immediate pressure on the Fed to cut was removed because of the jobs report."
- 'One and done'? -
The dollar, meanwhile, continued to push higher amid the shifting outlook for the Fed.
"The market still expects the Fed to cut rates later this month. But given signs of economic resilience, scope for Fed easing may be more shallow and short-lived than previously expected," said Joe Manimbo, senior market analyst at Western Union Business Solutions.
The dollar could rally "if the Fed Chair testimony tomorrow suggests that the Fed is much more inclined to do a 'one and done' rate cut at the end of July," said Boris Schlossberg of BK Asset Management.
"However, Fed Chair Powell faces enormous pressure from the White House to continue easing. So the market will watch for any signs of political accommodation which in turn will send the greenback lower once again."
Shares in BASF slumped more six percent after the company slashed its earnings forecast for the full year, blaming the impact of trade conflicts on the industry, before clawing back some of the decline to close 3.3 percent lower.
Shares in Deutsche Bank, Germany's embattled biggest lender, continued to decline, as analysts said the jury was still out on the massive restructuring announced at the weekend.
Deutsche Bank shares closed the day down 4.2 percent, among the worst performers on Frankfurt's DAX index of blue-chip companies, which was 0.9 percent lower overall.
Shares in Air France fell three percent after the government in Paris announced it would impose new taxes on plane tickets of up to 18 euros per flight.
Back in the United States, PepsiCo dropped 0.6 percent after reporting second-quarter profits of $1.54 per share, above analyst expectations.
Briefing.com said the muted market reaction was due to the soda maker's gains earlier in the year.
The PepsiCo announcement was among the first big reports of the second-quarter earnings season. Analysts expect the S&P 500 to report a drop of 2.6 percent in earnings for the quarter, according to FactSet.
- Key figures around 2100 GMT -
New York - Dow: DOWN 0.1 percent at 26,783.49 (close)
New York - S&P 500: UP 0.1 percent at 2,979.63 (close)
New York - Nasdaq: UP 0.5 percent at 8,141.73 (close)
London - FTSE 100: DOWN 0.2 percent at 7,536.47 (close)
Paris - CAC 40: DOWN 0.3 percent at 5,572.10 (close)
Frankfurt - DAX 30: DOWN 0.9 percent at 12,436.55 (close)
EURO STOXX 50: DOWN 0.4 percent at 3,509.75 (close)
Tokyo - Nikkei 225: UP 0.1 percent at 21,565.15 (close)
Hong Kong - Hang Seng: DOWN 0.8 percent at 28,116.28 (close)
Shanghai - Composite: DOWN 0.2 percent at 2,928.23 (close)
Euro/dollar: DOWN at $1.1207 from $1.1214 at 2100 GMT
Dollar/yen: UP at 108.84 yen from 108.72 yen
Pound/dollar: DOWN at $1.2462 from $1.2515
Brent North Sea crude: UP 5 cents at $64.16 per barrel
West Texas Intermediate: UP 17 cents at $57.83 per barrel