The pound is on course for its longest run of losses since March, as financial markets recover from a tough start to the week. Sterling remains weak despite the stock market recovering on the day, struggling after recent rate cuts by the Bank of England and following political uncertainty in the UK that’s keeping investors on edge.

The Struggling Pound: Why It’s at a Losing End

The British pound, also known as sterling, has taken a beating of late. It is on course for its longest losing streak since March 2022 with this week marking the fourth week in a row that it has fallen. While the stock markets recovered from earlier declines this week, the pound wasn’t so fortunate.

A Rough Week for Sterling

By Friday, it was trading at $1.277 against the US dollar, down 0.3% just this week, while over a period of four weeks, the pound has already lost 2.2 cents, which equates to 1.7%. Against the euro, it also fell to €1.168, down for a fourth consecutive week against the European currency.

What is Behind the Pound’s Weakness?

A couple of reasons for the currency’s lousy time are these: first, from the Bank of England’s cutting of interest rates; the said facts seemed to have an impact on the pound. The central bank decided to reduce interest rates last week, following which, as is usual, the currency went below par. Some experts say that there might be one or two more rate cuts before the end of the year, so more pressure on the pound could be expected.

The pound did pretty well earlier in July. This was due to traders having become optimistic following the landslide victory that the Labour Party had won in the general election. Now, all of that optimism is fading. Shahab Jalinoos, global head of currency research at UBS, said that the “Labour honeymoon” may be over. This comes from him citing the fact that investors were more cautious on the back of recent negative news stories, including rioting in the UK and worries over possible tax hikes in the October budget.

Stock Market Recovery

As the pound has struggled, stock markets have proved more resilient. More than making up the ground the London stock market, or rather the FTSE 100 index, lost for much of the week. The FTSE 100 sank by 2% on Monday, but almost regained all those falls by Friday. It closed at 8,168 points, just six points lower than where it began the week.

This step was taken to prevent the slowing economy of America to not fall into recession and an unanticipated increase in Japan interest rates. The rate hike in Japan, which made borrowing dear, led some investors to panic. But as the week progressed, global markets started making a comeback. For example, Japan’s Nikkei index experienced its biggest fall since 1987 but rebounded to have its strongest rally since 2008. In the United States, Wall Street posted its greatest gain in two years on Thursday.

Why Did the Markets Recover?

Karsten Junius, the head of economics and sustainable asset management at J Safra Sarasin, said the slide in markets that began earlier this week was an overreaction. He said the partial recovery seen already this week is justified because markets had probably become too pessimistic.

He said a variety of factors caused the markets to get off on the wrong foot, including concerns about a US recession, the unwinding of yen carry trades—a strategy where one borrows in a low-interest-rate currency like the yen to invest in higher-yielding assets—and also a more negative outlook on US corporate earnings in a slowing global economy. Also, geopolitical tensions in the Middle East only added to the caution. But he also said that on one hand, there may be elements of truth in these concerns, while on the other probably the market had overreacted.

What Next for Pound and Markets?

Although there has been a partial recovery across the markets, experts warn that we may very well not be out of the woods yet. Investors are still highly on guard as regards the speed and depth of any probable interest rate cuts by the US Federal Reserve. According to ActivTrades technical analyst Pierre Veyret, as long as there is little or no liquidity in many instruments, market volatility will still be high. He added that investors are still digesting the uncertainty of the global economy and searching for some direction following mixed signals from Fed officials.

Bank of America analysts have joined in, too, citing Wall Street’s August and September goals as having the feel of trying to strong-arm the Fed into more aggressive rate cuts.

The pound faces its worst losing streak since last year, making this its most difficult period. Equities have managed to demonstrate some resilience, but Sterling remains under pressure after the recent interest rate cut and political uncertainty in the UK. Investors are still cautious about how global economic conditions and central bank policies will play out in the weeks ahead.