GBP/USD climbs back closer to mid-1.3100s, eyes FOMC/BoE meetings this week

• GBP/USD kicks off the new week on a positive note amid the prevalent USD selling bias.
• Rising bets for a 50 bps Fed rate cut and the upbeat market mood undermine the buck.
• Bulls might refrain from placing aggressive bets ahead of the key central bank event risks.

The GBP/USD pair attracts some dip-buying on the first day of a new week amid relatively thin trading conditions on the back of a holiday in China and Japan. Spot prices currently trade around the 1.3135-1.3140 region, up just over 0.10% for the day and remain close to a one-week high touched on Friday amid the prevalent US Dollar (USD) selling bias.

The USD Index (DXY), which tracks the Greenback against a basket of six currencies, languishes near the YTD low set in August amid expectations for a more aggressive policy easing by the Federal Reserve (Fed). In fact, traders are pricing in a greater chance that the US central bank will lower borrowing costs by 50 basis points (bps) later this week after data released last week provided further evidence that inflation in the US was subsiding. This keeps the US Treasury bond yields depressed near the 2024 low and the USD bulls on the defensive. 

Apart from this, a generally positive risk tone further undermines the Greenback's relative safe-haven status. The British Pound (GBP), on the other hand, benefits from expectations that the Bank of England (BoE) will loosen policy by less than the Fed over the next year. The markets, however, are still betting on more BoE rate cuts, especially after data released last week pointed to a slowdown in the UK wage growth and a flat GDP print for the second straight month in July. This might hold back bulls from placing aggressive bets around the GBP/USD pair. 

Investors might also prefer to move to the sidelines ahead of this week's key central bank event risks. The Fed is scheduled to announce its decision at the end of a two-day policy meeting on Wednesday. This will be followed by the BoE meeting on Thursday, which will play a key role in influencing the next leg of a directional move for the GBP/USD pair. Nevertheless, the fundamental backdrop favors the USD bears and supports prospects for an extension of the pair's bounce from the 1.3000 psychological mark, or a multi-week low touched last Wednesday.