The dollar firmed slightly as investor sentiment turned cautious, with the war in the Middle East raging on and markets sceptical of a swift resolution even though US President Donald Trump delayed the bombing of Iran’s power grid.

“The news overnight is giving a breather to volatility at least, but it’s difficult to see that this is going to trigger a risk-on trend,” said Rodrigo Catril, a currency strategist at National Australia Bank.

Trump’s policy track record was keeping markets wary, with traders uncertain whether this marked the start of genuine negotiations or simply a retreat from volatility-inducing threats, Catril said.

Sterling eased 0.49 per cent to $1.3388 after jumping nearly 1pc, while the euro was down 0.3pc at $1.1583 after gaining 0.4pc in the previous trading session.

The Australian dollar fell 0.6pc to $0.6968, pulling back from a six-week high. The New Zealand dollar was down 0.5pc at $0.5832.

The yen was on the back foot at 158.73 a dollar after Japan’s core consumer inflation rate hit 1.6pc in February. That was below the Bank of Japan’s 2pc target for the first time in nearly four years, complicating the bank’s efforts to justify further interest rate hikes.

Oil prices edged higher after plunging more than 10pc on Monday, with Brent crude futures retopping $100.94 a barrel on supply concerns.