Sterling extended losses on Tuesday after a suspected terrorist attack killed at least 19 people and wounded 50 at a pop concert in Manchester, while the euro held gains made after German Chancellor Angela Merkel said the currency was “too weak.”

The incident took place just two-and-a-half weeks before an election that Prime Minister Theresa May is expected to win easily, though polls showing that was the contest tightening had put sterling under some pressure.

Sterling eased 0.1 per cent to $1.299, extending Monday's 0.3 per cent loss. The pound dropped 0.3 per cent to 144.32 yen, after losing 0.2 per cent on Monday.

If the attack on the concert by US singer Arianna Grande is confirmed as a terrorist incident, this would be the deadliest attack in Britain by militants since four British Muslims killed 52 people in suicide bombings on London's transport system in July 2005.

“We could see a bout of nervousness re: the terror threat, but it's likely to be minor,” said Shane Oliver, head of investment strategy at AMP Capital in Sydney. “Ever since 9/11 the impact on markets from terrorist events has been declining.”

The euro hit a six-month high overnight after Chancellor Merkel said a euro that was “to weak", due to the European Central Bank's monetary policy, helped explain Germany's relatively high trade surplus.

The euro inched higher to $1.1244 after jumping as much as 0.5 per cent and closing 0.3 per cent higher on Monday. “The thing with euro/dollar is that you have quite a positive mood on the euro at the moment,” said ABN Amro foreign exchange strategist Georgette Boele. “And when Merkel makes comments that the euro is probably too low then this is taken as another positive reason to push it higher.”

MSCI's broadest index of Asia-Pacific shares outside Japan was steady on Tuesday. It hit its highest level since May 2015 on Monday, posting its biggest one-day gain in over two months. Japan's Nikkei slipped 0.15 per cent. Chinese shares fell 0.3 per cent. Hong Kong's Hang Seng rose 0.2 per cent to its highest level since July 2015.

Australian shares slipped almost 0.1 per cent, while South Korea's KOSPI added 0.1 per cent.

Overnight, Wall Street closed as much as 0.8 per cent higher, driven by defense and technology stocks, after US President Donald Trump announced arms deals and other investments with Saudi Arabia over the weekend that Secretary of State Rex Tillerson said could add up to $350 billion.

An uncertain political climate in the US continued to weigh on the dollar, but a slowdown in Japanese manufacturing activity limited losses versus the yen. The dollar weakened 0.1 per cent to 111.15 yen.

The dollar index, which tracks the greenback against a basket of trade-weighted peers, was almost 0.1 per cent lower at 96.916.

Losses were also kept in check by a gauge of US economic activity that improved in April to its highest level since late 2014, suggesting an acceleration in production and hiring activity following an anaemic first quarter.

The White House is set to deliver President Donald Trump's first full budget to lawmakers on Tuesday, a plan that would cut $3.6 trillion in government spending over 10 years, balancing the budget by the end of the decade.

Presidential budgets are often ignored by Congress, which controls federal purse strings.

In commodities, oil prices were higher on growing confidence that top exporters would agree to extend supply curbs this week and speculation that the cuts could be deepened further.

US crude futures jumped 0.7 per cent to $51.10 a barrel in its fifth straight session of gains. It touched its highest level in more than a month earlier.

Global benchmark Brent edged down marginally to $53.82 but retained most of Monday's 0.45 per cent gain.

The weaker dollar lifted gold, which climbed 0.2 per cent to $1,262.78 an ounce in its third straight session of gains.