LONDON, March 21Reuters Sterling fell on Tuesday as broader market fears about banks subsided and the focus shifted to the outlook for interest rates, with the Federal Reserve and Bank of England BoE both due to meet this week.

After a tumultuous few weeks in financial markets, shares in European banks rallied on Tuesday for a second consecutive day, with fears of contagion assuaged following UBS Group39;s statebacked takeover of Credit Suisse on Sunday.

By 1205 GMT, the pound was 0.2 down against the dollar at 1.22560 , and 0.7 lower against the euro at 87.940 pence .

Relative calm extended to forex markets where traders turned their attention back to interest rate expectations, which have shifted dramatically in recent days.

The Fed will announce its next rate decision on Wednesday, while the BoE will convene on Thursday, as will the Swiss National Bank and Norwegian central bank.

As of Tuesday morning, markets were pricing in a 44 chance of no change from the BoE, and a 56 chance of a 25 basispoint increase .

UK inflation data on Wednesday will also be closely watched and is expected to show some easing.

The data has been somewhat more mixed of late, with growth holding up better than expected and the labour market continuing to run hot, said Stuart Cole, head macro economist at Equiti Capital, though he also pointed out that wage growth is showing signs of slowing, and services inflation may have peaked.

And of course there is the similar need to address the…