The pound bounced back from its one-week low against the dollar (GBPUSD=X) on Tuesday as fears surrounding war in Ukraine eased.
Sterling rose as much as 0.2% against the greenback to $1.3554, however, it was still trading lower against the euro at 83.96p.
It comes as traders remain focused on geopolitical developments, which has seen them avert to safe-haven assets such as gold and the dollar in recent weeks.
On Tuesday morning, Moscow announced that it was withdrawing some troops from the Ukrainian border after completing drills.
Although this quelled fears of an imminent invasion, large-scale drills across the country continue.
“Units of the Southern and Western military districts that have completed their missions have already begun boarding rail and automobile transport and will begin relocating to their garrisons today. Separate units will march on foot as part of military convoys,” Defence Ministry spokesman Igor Konashenkov said, according to the Interfax news agency.
“A number of combat training exercises, including drills, have been conducted as planned.”
Another large-scale exercise in the region, the joint Russian-Belarusian Union Resolve war games, is due to end on 20 February.
Michael Leister, head of interest rates strategy at Commerzbank, said: “The absence of armed action on the Ukraine border and indications about the willingness to talk seem sufficient to soothe market nerves.
The currency move also came as new data from the Office for National Statistics (ONS) showed UK wages fell at the end of last year when adjusted for inflation.
Read more: UK wage growth lags behind inflation as cost of living squeeze continues
UK wage growth came in at 3.6%, down from a previous 3.8%, adding further pressure on incomes amid concerns over a cost-of-living squeeze.
This lagged behind UK inflation which hit 5.4% in the 12 months to December, and is expected to climb above 7% by April when the energy price cap rises.
After adjusting for recent rises in consumer prices, real total pay fell in the year to October-December 2021, despite a strong recovery in bonuses. Average wages excluding bonuses fell 1.2% – the biggest decline in almost 8 years.
Watch: How does inflation affect interest rates?
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