• The GBP/USD pair starts the up-to-date week on a positive note, despite the dominant USD selling trend.
• Growing expectations of a 50 basis point interest rate cut by the Federal Reserve and bullish market sentiment are weakening the dollar.
• Bulls may refrain from aggressive bets amid risks from key central bank events.

GBP/USD is attracting traders to the lows on the first day of the up-to-date week amid relatively tender trading conditions due to a holiday in China and Japan. Spot prices are currently trading around 1.3135-1.3140, up just over 0.10% on the day and remaining close to a weekly high reached on Friday amid a prevailing US dollar (USD) selling bias.

The USD Index (DXY), which tracks the US dollar against a basket of six currencies, is holding near its year-to-date low set in August amid expectations of more aggressive easing by the Federal Reserve (Fed). In fact, investors are pricing in a higher probability that the US central bank will cut borrowing costs by 50 basis points (bps) by the end of this week after data released last week provided further evidence that US inflation is sinking. That is keeping US Treasury yields low near their 2024 lows and USD bulls on the defensive.

In addition, the overall positive risk tone further undermines the Greenback’s relative safe-haven status. On the other hand, the British Pound (GBP) is benefiting from expectations that the Bank of England (BoE) will ease policy less than the Fed over the next year. However, markets are still betting on more BoE rate cuts, especially after data released last week showed a slowdown in UK wage growth and a flat GDP print for the second month in a row in July. This could deter bulls from placing aggressive bets around GBP/USD.

Investors may also want to sideline key central bank risks this week. The Fed is set 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 shaping the next phase of GBP/USD’s directional move. Nevertheless, the fundamental backdrop is favorable to USD bears and supports the prospects for an extended rebound from the psychological 1.3000 level or the multi-week low reached last Wednesday.