In London, the FTSE 100 (^FTSE) closed flat as the Bank of England ruled out an emergency interest rate rise following a rout in sterling. The CAC (^FCHI) fell 0.1% in Paris and the DAX (^GDAXI) lost 0.3%.
Andrew Bailey said Threadneedle Street's Monetary Policy Committee "will not hesitate to change interest rates by as much as needed" to curb inflation.
But the Bank governor stopped short of announcing an emergency meeting of policymakers this week and suggested it would stick to its next scheduled meeting in November.
He said: "The Bank is monitoring developments in financial markets very closely in light of the significant repricing of financial assets.
"The role of monetary policy is to ensure that demand does not get ahead of supply in a way that leads to more inflation over the medium term. As the MPC has made clear, it will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the Government’s announcements, and the fall in sterling, and act accordingly.
"The MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2% target sustainably in the medium term, in line with its remit."
Meanwhile the Treasury department confirmed that chancellor Kwasi Kwarteng will set out a medium-term fiscal plan on 23 November, alongside a forecast from the Office for Budget Responsibility.
"The market’s continuing verdict on the mini-budget which turned out to be anything but mini couldn’t really have been any more savage as sterling hit an all-time low against the dollar," Russ Mould, investment director at AJ Bell said. "The sceptre of parity against the dollar, which felt far off just a week ago, now feels dangerously close."
The tax-cutting measures unveiled by chancellor Kwasi Kwarteng in his mini-budget on Friday, aimed at boosting growth, including scrapping the additional rate of income tax and cutting stamp duty.
The fiscal policies, which Kwarteng said were just the start and pledged "more to come", have stoked fears of increasing government borrowing and sent the pound to an all-time low.
Sterling tumbled nearly 5% to as low as $1.0327 in Asia trading, taking it below its 1985 low and to the weakest since decimalisation in 1971.
It made up some ground to about $1.070, but the sharp drop has stoked fears that the currency could slump to parity by the end of the year.
The dollar gained on a range of currencies, with the euro (EURUSD=X) hitting a fresh 20-year low against the greenback amid recession and energy security fears. One euro now costs just 96 cents.
Across the Atlantic, US indices opened mixed as investors continue to grapple with the Federal Reserve's most aggressive campaign to tighten monetary policy since 1981, with signals of more rates raises to come for longer.
Asian stocks finished in the red overnight with the Nikkei (^N225) crashed 2.7% in Japan, while the Hang Seng (^HSI) edged 0.3% lower in Hong Kong and the Shanghai Composite (000001.SS) fell 1.2% in mainland China.
Richard Hunter, head of markets at Interactive Investor, said: "As investors flock to the safety of the US Dollar, the reverberations have impacted across a number of asset classes.
"Other currencies, oil and gold are all shouldering dollar strength by themselves weakening. In addition to the ongoing flight of the dollar, overarching concerns around the possibility of a global recession are weighing on equity markets generally.
"The risk of a hard landing for economies following a period of over-tightening are becoming elevated. Not only has the Federal Reserve stated that its aggressive interest rate hiking policy is still in play, but similar moves by other central banks could yet come home to roost with the result of stifling global growth."