Hedge Funds Ramp Up Bearish Pound Bets on Andy Burnham Risk
Hedge funds and asset managers piled into bearish sterling option bets last week after Manchester Mayor Andy Burnham secured a pathway to potentially challenge for UK prime minister, raising fears of political instability and looser fiscal policy.
The volume of sterling put options against the dollar, which rise in value if the pound weakens, was more than six times larger than for calls, according to data from the Depository Trust & Clearing Corp. on contracts worth at least £100 million across May 14 and 15. Sterling put options against the dollar notched their highest volumes in two years on Thursday on CME Group’s central limit order book.
Burnham’s that he intends to run for Parliament, a prerequisite to challenge Keir Starmer, helped send the pound to its worst weekly drop since November 2024 against the US currency. Investors view a potential Burnham premiership as a risk to fiscal discipline that may lead to higher public spending, increased gilt issuance and elevated borrowing costs.
“With political noise ramping up, we have seen increased demand for pound puts from both fast money and real money accounts,” said Julian Weiss , head of G-10 FX options trading at Bank of America in London.
After retreating every day last week, the pound edged 0.4% higher to $1.3379 as of 9:54 a.m. in London.
With a UK by-election due on June 18, traders are increasingly focused on options that capture the post-vote reaction. The premium to hedge sterling weakness against the dollar over the next two months compared with protection against a stronger pound jumped the most since Sept. 2 on Thursday, reflecting growing demand for bearish positioning.
There’s also been demand for sterling put options versus other currencies besides the dollar, including the euro and Australian dollar, according to Mukund Daga , global head of FX options at Barclays Bank PLC in London.
‘Definite Shift’
Last week’s political developments triggered a “definite shift” in investor sentiment toward sterling in the cash market, Rob Turner , director of eFX trading at RBC Capital Markets in London said Friday.
Sluggish peace talks between the US and Iran are also playing into currency markets, as the ongoing geopolitical concerns bolster demand for the dollar as a haven asset.
“We have seen some cable selling as it captures UK political worries alongside a renewed dollar bid on higher oil prices and lack of progress in Iran,” said Antony Foster , head of G-10 spot trading at Nomura International Plc in London on Friday.
At the same time, while clients are selling the pound against the dollar, they appear “unwilling to chase” sterling lower versus the euro in the spot market for now, he added.
The same hesitation hasn’t shown up in options. Risk reversals, a closely watched barometer of positioning and sentiment, printed at their most euro-bullish since April 2025 at most tenors.
