Futures indices extend losses in the light of aggressive tightening policies

All the facts at present indicate that curbing inflation is the top priority for policymakers, which will hamper the economy. Therefore, safe-haven currencies like the US dollar and Swiss franc are in high demand as investors are looking for safety to park their capital. 

On Thursday, the dollar remained strong against other major currencies while sterling slipped back to $1.2132, setting up a decline of 3.7% for the month.

Overnight, the dollar reached its highest level in 24 years against the yen as the hawkish Fed and dovish Bank of Japan continued to pressure the yen.

In contrast, the euro is set to slump 2.7% monthly and 5.5% quarterly on Thursday as sentiment is weakening around the shared currency with soaring inflation and continued war in Ukraine. After tumbling overnight against a resurgent US dollar, it struggled to regain its footing on Thursday amid renewed concerns about higher rates and a potential recession.

Early in the Asia session on Thursday, the euro fell to a fresh 7-year low versus the Swiss franc at 0.9963 francs, with the Alpine currency also benefitting from safe-haven flows and the shock rate hike by the Swiss National Bank a few weeks ago.

Stock markets in Europe are expected to open lower Thursday, ending a difficult month on a gloomy note due to concerns over aggressive monetary tightening that will cause a global economic slowdown.

It's inevitable that the European Central Bank will raise interest rates in an effort to tackle soaring inflation while it may cause the economic recovery from the COVID pandemic to stall.

According to Christine Lagarde, president of the European Central Bank, inflation in the Eurozone is "undesirably high," and the bank will take "all necessary measures" to bring inflation down to its 2% target.

In his remarks at the ECB Forum, Federal Reserve chair Jerome Powell suggested that a broader economic slowdown may inevitably result from aggressive monetary policy actions aimed at curbing inflation.

This slowdown was evident in the US GDP contraction in Q1, which decreased by 1.6%, below expectations. Additionally, German retail sales dropped 3.6% on the year in May, just ahead of the release of the country's June unemployment rate.

Events for today

On Friday, France's consumer inflation data for May will be released ahead of the Eurozone's. The official figure is expected to remain four times higher than the central bank's target after Germany's inflation figures topped about 8% on Wednesday. The Spanish number actually hit 10%.