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Strategists at Bank of America say a bet that rising political uncertainty in Britain would hurt the pound has paid off.
And, in a note to clients out Friday, they say their booking profit.
"We close our short GBP/USD spot trade at 1.3397. We entered the trade at 1.3420 on 23 March," says strategist Kamal Sharma.
He says GBP political risk premia increased in the wake of last week's local elections as expected, which was the initial motivation for the trade.
"With these catalysts now behind us, we view it as prudent to exit following today's GBP selloff," says Sharma.
The analyst explains risks to Sterling are now symmetric: i.e. the heavy skew lower heading into recent events has gone, and with it the compelling risk-reward to take a short position on pound-dollar.
Indeed, "a relief rally remains possible if the challenge proves unsuccessful or if challengers signal a strong commitment to fiscal discipline," says Sharma.
The selloff in the pound represents a necessary repricing of risks associated with higher inflation and borrowing under a Burnham government.
The odds (via Polymarket) of Burnham being the next UK Prime Minister jumped from around 22% to 42% on the news he would be standing for election.
The pound slide is therefore justified.
But Pound Sterling Live's take on the Burnham situation is that downside risks to the pound are limited by the belief that those odds won't travel much higher from here: the scale of the challenge Burnham still faces is significant.
By choosing to compete in what polling shows is now a Reform stronghold, he must unify a fractured Labour base and attract Green and Reform supporters to the fold.
His message will be difficult to formulate: does he lead with "vote for Labour in order to remove your Labour Prime Minister"? or does he choose: "vote for Labour to beat Reform" in a constituency that was already held by Labour before he walked in and toppled the apple cart? That's akin to calling for help to douse a fire he intentionally started.
But even if Burnham fails in his quest, the UK faces months of political uncertainty, and that's a problem for the pound.
So while the big moves might be behind us, the easiest direction of travel is still lower.
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