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Sterling softens versus euro, Ukraine in focus

© Reuters. FILE PHOTO: Pound and U.S. dollar banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic

LONDON (Reuters) – Sterling firmed against a broadly softer dollar on Tuesday after reports that Russia was returning some troops near Ukraine to their bases dented demand for safe-haven assets.

Data showed the total number of people in work in Britain shrank in the last three months of 2021 while workers’ earnings fell when adjusted for inflation.

The numbers had little immediate impact on the pound, with traders focused on developments in Ukraine.

Britain’s currency was last trading at $1.35625, a quarter of a percent firmer on the day and above a one-week low hit on Monday at $1.34950 as fears about a Russian invasion of Ukraine boosted the dollar.

Some troops in Russia’s military districts adjacent to Ukraine are returning to base after completing drills, Russia’s defence ministry was quoted as saying on Tuesday, a move that could de-escalate frictions between Moscow and the West.

Against the euro, sterling was a touch softer at 83.67 pence.

The pound has benefited in recent weeks from an expectation that the Bank of England could step up interest rate hikes, having lifted rates twice since December.

Analysts said UK inflation numbers out on Wednesday should provide a better sense of the scale of further monetary tightening likely from the BoE in the months ahead.

“If there are fears of overkill from Fed policy tightening in the U.S., judging from the Gilt yield curve, those fears are even greater in the UK,” Derek Halpenny, head of research at MUFG, said in a note.

Money markets fully price in at least a 25 basis point BoE rate rise on March 17 after its next meeting, and a roughly 90% chance that the BoE will raise rates to 1.0% from their current 0.5%.

Sterling rebounds versus dollar, Ukraine in focus

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