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The dollar edged higher on Tuesday and major currencies traded sideways as lingering concerns over tensions in the Middle East partially offset investors' optimism for imminent U.S. interest rate cuts.

Geopolitical risks kept early currency moves subdued, though fears of an escalating conflict following Israel and Hezbollah's major missile exchange over the weekend petered out.

The yen was last 0.2% lower at 144.82 per dollar, giving up some of its safe haven gains from the previous session which saw it rise to a three-week high of 143.45 per dollar.

The euro and sterling dipped slightly to $1.1161 and $1.3182, respectively, though both weren't far from their recent multi-month highs.

The Canadian dollar was little changed at 1.3487 per U.S. dollar, having scaled a five-month peak overnight as oil prices surged.

"The market is sort of taking a breather and waiting to see key data releases," said Rodrigo Catril, senior FX strategist at National Australia Bank.

"Given also that we have kind of second-tier data releases this week, it plays to the view of a sort of more rangey environment over the near term."

Still, major currencies were holding near milestone highs and the dollar near its lowest level in over a year, helped by the likelihood of a U.S. rate cut in September after Federal Reserve Chair Jerome Powell more or less nodded to such a move in his Jackson Hole speech on Friday.

San Francisco Fed President Mary Daly also said on Monday a quarter-percentage point reduction in borrowing costs next month was likely.

Against a basket of currencies, the greenback was last 0.05% higher at 100.90, languishing near a 13-month low of 100.53 hit in the previous session.

The Fed's aggressive rate-hike cycle and expectations of how much further U.S. rates could rise had been a huge driver of the dollar's strength over the past two years, keeping other currencies, particularly the Japanese yen, under pressure.

"The question now is no longer whether the Fed is going to cut in September but by how much," said David Chao, Invesco's global market strategist for Asia Pacific ex-Japan.

"Powell left the door open for larger cuts in case labour conditions deteriorate. Investors believe that the Fed appears to be open to cutting rates faster than previously expected."

Markets have already fully priced in a rate cut next month, and see about 100 basis points worth of easing by the end of the year.

Elsewhere, the Australian dollar eased 0.05% to $0.6768, though remained not far from a one-month high of $0.67985 hit on Friday.

The New Zealand dollar edged 0.08% lower to $0.6199, but similarly strayed not too far from Friday's high of $0.6236, its strongest level in over seven months.