GBP/USD Volatile Ahead of Federal Reserve and Bank of England Policy Decisions

The GBP/USD is hovering around the 1.3500 level as markets await policy decisions from both the Federal Reserve and the Bank of England.

While US inflation data has reinforced expectations that the Fed will raise interest rates by 25 basis points, giving the dollar a modest yield advantage, UK economic fundamentals remain solid.

In July, the UK's GDP rose 0.4% month-on-month, easing fears of a rapid deterioration in the UK economy and providing the pound with some cushioning.

However, market expectations for the Bank of England to keep interest rates around 3.75% are capping upside potential for the pound, and investors will be watching closely for policy guidance from both central banks this week.