LONDON, July 20 (Reuters) – The dollar was broadly steady on Monday as uncertainty about the outlook for the conflict in the Middle East kept traders cautious, while the pound edged higher as Andy Burnham prepared to replace Keir Starmer as prime minister.
The dollar index, which measures the greenback's strength against a basket of six currencies, was down 0.1% at 100.72.
Strikes between the U.S. and Iran continued as part of an escalating cycle of attacks after an interim ceasefire agreement signed a month ago unravelled, deepening a struggle for control over the Strait of Hormuz that has disrupted energy supplies and stoked fears of global inflation.
"Markets, I think, have become somewhat more comfortable with the range of risks to be priced in and until something happens that catches traders by surprise, we're just not going to see a huge amount of volatility for the Middle East," Nick Rees, head of macro research at Monex Europe, said.
"It'll keep markets nervous. It'll keep markets cautious. But I think we're really going back to where we were, not in April, but in May, where volatility ground lower, because we saw just a general lack of conviction on where things were going to trade next," he said.
Brent crude futures were last little changed at $88.16 a barrel, having risen above the $90 mark earlier in the day.
The euro was little changed at $1.1441, while the British pound was 0.13% higher at $1.3470 as Burnham was set to take over as premier.
Traders are especially keen to see who Burnham will pick as the new chancellor given the UK's tricky fiscal position. UK assets last week were supported by reports that the job would likely go to Shabana Mahmood, widely regarded as a centrist, rather than a more left-leaning candidate.
"While we do not rule out a little further sterling strength during the Burnham honeymoon period, the UK's tight fiscal situation suggests a new cabinet will have to turn to tax increases if it wants to build out its plans to improve areas such as social care," Chris Turner, head of global markets at ING, said in a note.
Elsewhere, the U.S. dollar was down 0.17% at 6.7663 against the Chinese yuan in offshore trade after China kept its benchmark lending rates unchanged for a 14th consecutive month on Monday, in line with market expectations.
Against the yen, the U.S. dollar was flat at 162.34 yen in thin liquidity as Japan observed the Marine Day holiday.
Markets continue to anticipate no change to rates at the Federal Reserve's next meeting on July 29, with Fed funds futures pricing an implied 85.6% probability of a hold, compared with a 61.5% chance a month ago, according to the CME Group's FedWatch tool.
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