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LONDON  - The euro rebounded on Tuesday, nearly erasing all of Monday's losses, while the dollar's losses deepened after reports some Russian troops in areas near Ukraine have started returning to their bases.

Against the greenback, the single currency climbed 0.4% to $1.1354, and within striking distance of Monday's high of $1.1369, as European stock markets rebounded on the news while bond yields headed higher. [GVD/EUR]

Some troops in Russia's military districts adjacent to Ukraine are returning to their bases after completing drills, Russia's defence ministry said on Tuesday, a move that could de-escalate frictions between Moscow and the West

"Russia's decision to return some troops to their bases following the completion of some military exercises has stoked a relief rally in equities, while weighing on the dollar, gold, and oil," said Marc Chandler, chief market strategist at Bannockburn Global Forex.

While the biggest beneficiary of the news was the rouble which jumped as much as 2% on the news, investors also dumped safe-haven currencies like the yen and the franc. The Japanese unit registered its second biggest daily rise this year on Friday on rising tensions.

Rising geopolitical worries had kept a lid on the euro's gains in recent days even as the European Central Bank joined its central bank peers in signaling a hawkish turn in its monetary policy at a meeting this month.

The euro tumbled to a near two-week low on Monday after Ukrainian President Volodymyr Zelenskiy called on citizens to fly the country's flags from buildings and sing the national anthem in unison on Feb. 16, a date some Western media have cited as a possible start of a Russian invasion.

"While any news about a potential de-escalation is welcome, I think the markets will want to see something more concrete before judging the crisis to be over," said Stuart Cole, head macro economist at Equiti Capital.

"By this I think it will require the removal from the border of sufficient troop numbers or military hardware that makes an invasion materially more difficult to undertake,"

Away from geopolitics, U.S. Federal Reserve officials continue to spar over how aggressively to begin upcoming interest rate increases at their March meeting.

But the dollar failed to get a fresh lift from the comments with an index weakening 0.3% versus its rivals.

Elsewhere, the pound also advanced on growing expectations the Bank of England was likely to raise interest rates again next month after lifting them twice since December. [GBP/]

In cryptocurrencies, bitcoin was 3.4% higher, trading around $44,000.