Investing.com — Bank of America analysts maintain a bullish stance on the British Pound (), even as they acknowledge rising downside risks and a “glass half empty” sentiment to the investor.

The firm estimated that a risk premium was a key factor in the currency’s recent weakness, which contributed approximately 1.2% to the GBP’s decline.

Analysts expressed confusion over the specific reasons behind the surge in UK bond yields, particularly in the absence of new, relevant data. Despite concerns about the UK’s double deficits and the early timing of these developments in 2025, the Bank of America team continues to see a bright outlook for GBP. They believe the market has accounted for most of the negative news, although they admit risks have increased.

In terms of market flow and positioning, GBP longs are considered weak in the short term, but the overall market position remains light. Recent data shows a continuation of the trend of high position liquidation. However, analysts at Bank of America suggest that the current environment may favor a recovery, given the low expectations surrounding the GBP.

The report also discussed the risk premium, which analysts believe is set to decrease as the market’s focus shifts to the US Dollar (USD). They suggest that investors looking to take advantage of the declining GBP risk premium may consider bearish three-month EUR/GBP seagull structures.

Bank of America has outlined several reasons for their continued bullish outlook on the GBP. They expect UK terminal rates to align with the Bank of England’s projections of their economists, and expect the European Central Bank’s terminal rate to adjust further.

Furthermore, they argue that while UK growth is constrained by structural factors, this is offset by weaker growth in Europe, suggesting that the UK may outpace European growth. Finally, they posit that a rapid easing cycle could benefit the GBP if it eases stagflation concerns and supports growth without compromising fiscal stability.