GBP/USD continues to consolidate just to the south of the 1.3100 level with the Fed policy announcement due at the top of the hour. At present, the pair is trading with gains of about 0.4%, with sterling performing well with markets in a risk-on mode amid hopes for further progress in Russo-Ukrainian peace talks.

The bank is expected to lift rates by 25bps for the first time in three years. Traders/market participants will be predominantly focused on 1) the Fed’s new economic forecasts, 2) the Fed’s new dot-plot and 3) the tone of the statement and Fed Chair Jerome Powell’s press conference remarks. Any dovish surprises may be enough to see GBP/USD break back above 1.3100, opening the door to a push on towards 1.3200.

On the four-hour chart, GBP/USD stays afloat above the 20-period SMA but the Relative Strength Index (RSI) indicator stays near 50, suggesting that buyers are yet to take control of the pair's action.

1.3100 (psychological level, 50-period SMA) aligns first resistance. In case this level turns into support, next bullish targets are located at 1.3150 (static level) and 1.3200 (psychological level).

On the downside, 1.3050 (former static resistance, 20-period SMA) could be seen as interim support before 1.3000 (psychological level).

Recent moves in long-term US bond yields suggest markets increasingly believe that, in the long-run, the Fed will lift rates back to the so-called “neutral” level (in the 2.0-2.5% region). Any hawkish signals from Wednesday’s meeting that spur further upside in long-term US yields would risk sending GBP/USD back towards weekly lows in the 1.3000 area, especially given that the BoE, who set rates on Thursday, won’t be expected to match any Fed hawkishness.

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