LONDON (Reuters) - Sterling weakened against the dollar and the euro on Tuesday, as the single currency firmed on reports that Russia was returning some troops near Ukraine to their bases.
Data showed that annual pay growth in Britain in the final quarter of 2021 edged up to 4.3% from 4.2% in the three months to November, reflecting bigger Christmas bonuses than a year ago.
Analysts said the latest jobs data confirmed expectations of higher interest rates from the Bank of England but with this already priced into markets, the impact of the data on the pound was muted.
There was also focus on developments in the Ukraine standoff, where some troops in Russia's military districts adjacent to Ukraine were returning to base after completing drills, Russia's defence ministry was quoted as saying on Tuesday.
The move, seen as potentially de-escalating frictions between Moscow and the West, encouraged a move out of safe-haven assets.
And as the euro rebounded, sterling weakened. It was last trading at 83.93 pence per euro, down 0.5% on the day.
The pound, which had been firmer against the dollar for much of the day, weakened in late trade to hit a two-week low at $1.3488. It was last down just 0.15% on the day at $1.3512.
"The problem with sterling is that on the one hand you have the economy doing well and the BoE is raising rates, so it's hard to be too pessimistic on the pound," said Kenneth Broux, a currency strategist at Societe Generale (PA:SOGN).
"But on the other hand you have risk aversion and that tends to hurt sterling in general."
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.
Focus now turned to Wednesday's UK inflation numbers for a sense of the scale of further monetary tightening likely from the BoE in the months ahead.
"Certainly in terms of what's priced in, to get further big reactions is going to be difficult at this juncture," said Derek Halpenny, head of research at MUFG.
Money markets fully price in at least a 25 basis point BoE rate rise on March 17 after its next meeting, and a more than 80% chance that the BoE will raise rates to 1.0% from their current 0.5%.