Sharecast - The FTSE 100 was down 0.6% at 7,649.56.
The Fed is widely expected to raise rates by 25 basis points later. Han Tan, chief market analyst at Exinity Group, said "anything else would be a shocker".
"The critical question that’s at the forefront of the market’s collective mind is whether this week’s Fed rate hike will indeed be the last of the cycle," he said. "If Chair Powell leans into expectations that the FOMC is ready to pause, or at least skip a September hike, that may encourage further risk-taking across global financial markets.
"However, should the Fed acquiesce to its June dot plot and swing the door wide open for yet another rate increase, such repricing should prompt an immediate but possibly limited recovery for the US dollar, while weighing on the likes of gold, stocks, and oil.
"Chair Powell’s policy cues later today will also frame how markets interpret top tier US economic data, especially around jobs and inflation, in the leadup to the next FOMC meeting in September."
In equity markets, Lloyds slid despite posting massive interim profits and raising its net interest margin guidance while hard-pressed savers were still looking for a decent return on their deposits.
CMC Markets analyst Michael Hewson said: "Despite this more positive outlook the shares have slipped back after profits fell short of expectations. This miss on profits appears to be down to an increase in provisions for non-performing loans, which came in at £419m, and a fall in Q2 NIM to 3.14% down from 3.22% in Q1."
NatWest (LON:NWG) was also lower after it announced that Alison Rose has stepped down as chief executive in a high-profile row about former UKIP leader Nigel Farage.
Reckitt Benckiser - the maker of Dettol, Lysol and Nurofen, among other things - slumped even as it posted a jump in first-half like-for-like net revenue, driven by solid performances across its portfolios.
Rio Tinto (LON:RIO) fell as the miner reported a slide in half-year profits after global commodity prices fell sharply. Miners in general were weak, with Glencore (LON:GLEN) and Antofagasta (LON:ANTO) also trading down.
On the upside, engine maker Rolls-Royce (LON:RR) surged as it lifted its full-year guidance after a strong first half, while Aston Martin rallied as the luxury car maker said interim losses narrowed and maintained annual guidance as strong demand boosted revenue.
Market Movers
FTSE 100 (UKX) 7,649.56 -0.55%
FTSE 250 (MCX) 19,096.16 -0.28%
techMARK (TASX) 4,418.90 -0.72%
FTSE 100 - Risers
Rolls-Royce Holdings (RR.) 185.80p 21.72%
Ocado Group (LON:OCDO) 803.20p 4.39%
International Consolidated Airlines Group (LON:ICAG) SA (CDI) (IAG) 151.55p 1.68%
Entain (LON:ENT) 1,314.50p 1.19%
British American Tobacco (LON:BATS) 2,660.50p 1.01%
M&G (MNG) 203.10p 0.84%
GSK (GSK) 1,402.80p 0.70%
Associated British Foods (LON:ABF) 2,052.00p 0.69%
Hiscox Limited (DI) (LON:HSX) 1,110.00p 0.63%
WPP (LON:WPP) 829.20p 0.63%
FTSE 100 - Fallers
Reckitt Benckiser Group (RKT) 5,730.00p -3.57%
Lloyds Banking Group (LON:LLOY) 44.53p -3.40%
NATWEST GROUP (NWG) 242.80p -3.34%
Glencore (GLEN) 471.90p -2.11%
Croda International (CRDA) 5,812.00p -1.99%
Anglo American (LON:AAL) 2,458.00p -1.92%
Rio Tinto (RIO) 5,294.00p -1.85%
Diageo (LON:DGE) 3,394.00p -1.82%
Fresnillo (LON:FRES) 620.60p -1.80%
JD Sports Fashion (JD.) 152.50p -1.80%
FTSE 250 - Risers
Tyman (TYMN) 315.00p 5.70%
RHI Magnesita N.V. (DI) (RHIM) 3,014.00p 5.02%
Centamin (DI) (LON:CEY) 97.95p 4.70%
Aston Martin Lagonda Global Holdings (AML) 355.40p 4.47%
Bridgepoint Group (Reg S) (BPT) 196.70p 3.25%
Babcock International Group (LON:BAB) 400.60p 2.72%
Wizz Air Holdings (LON:WIZZ) 2,462.00p 2.24%
Ascential (ASCL) 213.40p 2.20%
Moneysupermarket.com Group (LON:MONY) 262.60p 2.02%
International Public Partnerships Ltd. (INPP) 133.40p 1.83%
FTSE 250 - Fallers
FDM Group (Holdings) (LON:FDM) 561.00p -8.78%
Darktrace (LON:DARK) 383.50p -3.67%
Digital 9 Infrastructure NPV (DGI9) 58.40p -3.47%
Rathbones Group (RAT) 1,864.00p -3.22%
Ferrexpo (LON:FXPO) 90.00p -2.70%
Renishaw (LON:RSW) 3,880.00p -2.41%
Energean (ENOG) 1,109.00p -2.29%
Spectris (LON:SXS) 3,560.00p -2.12%
Discoverie Group (DSCV) 806.00p -2.07%
Rotork (LON:ROR) 307.40p -1.98%