USD/JPY consolidates around mid-132.00s, just below weekly high ahead of the Fed

• USD/JPY lacks any firm direction on Wednesday and oscillates in a narrow trading band.
• A subdued USD price action acts as a headwind; a positive risk tone lends some support.
• Traders also seem reluctant and prefer to wait for the highly-anticipated FOMC decision.

The USD/JPY pair struggles to capitalize on the previous day's rally of over 150 pips and oscillates in a narrow band below the weekly high touched earlier this Wednesday. The pair trades around the 132.55-132.60  area during the early European session, nearly unchanged for the day, as traders keenly await the outcome of the highly-anticipated FOMC monetary policy meeting.

The Fed is scheduled to announce its decision later during the US session and is widely expected to deliver a smaller 25 bps rate hike. Moreover, the recent collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - fueled speculations that the US central bank might even cut interest rates during the second half of the year. Hence, the focus will be on the accompanying monetary policy statement, the updated economic projections and Fed Chair Jerome Powell's remarks at the post-meeting press conference.

Investors will look for fresh cues about the future rate-hike path, which, in turn, will play a key role in influencing the near-term US Dollar price dynamics and provide a fresh directional impetus to the USD/JPY pair. Heading into the key central bank event risk, the USD languishes near its lowest level since February 14 touched on Tuesday and acts as a headwind for the major. That said, a stable performance around the equity markets undermines the safe-haven Japanese Yen (JPY) and lends some support to the pair.

The Fed on Sunday unveiled an enhanced seven-day dollar swap to add liquidity into the monetary system. Moreover, the news that UBS will rescue Credit Suisse in a $3.24 billion deal helps ease fears of a full-blown global banking crisis and boosts investors' confidence. This led to a strong rally across the global equity markets since the beginning of this week. This, along with a more dovish stance adopted by the Bank of Japan (BoJ) should continue to act as a tailwind for the USD/JPY pair, at least for the time being.

Technical levels to watch