The US dollar traded little changed on Monday as investors remained cautious amid uncertainty surrounding the evolving conflict in the Middle East, while sterling advanced as Andy Burnham prepared to succeed Keir Starmer as the United Kingdom's prime minister.

The dollar index, which measures the US currency against a basket of six major peers, slipped 0.1% to 100.72.

Markets remained focused on the ongoing exchange of military strikes between the United States and Iran following the collapse of a temporary ceasefire reached last month. The renewed conflict has intensified tensions over control of the Strait of Hormuz, disrupting energy supplies and fueling concerns over higher global inflation.

Nick Rees, Head of Macro Research at Monex Europe, said markets appeared to have become more comfortable with the range of risks they needed to price in.

"Unless something unexpected catches investors off guard, we are unlikely to see major volatility driven by the Middle East," Rees said.

"It will remain a source of concern and keep markets cautious, but we are probably returning to the environment we saw in May, when volatility gradually eased because there was no clear conviction about the market's next direction."

Brent crude futures were little changed at $88.16 a barrel after climbing above $90 earlier in the session.

Focus shifts to Britain's next finance minister

The euro was steady at $1.1441, while sterling rose 0.13% to $1.3470 as Andy Burnham moved closer to taking office as Britain's next prime minister.

Investors are paying close attention to Burnham's choice of finance minister, given the challenging fiscal position facing the UK.

British assets received support last week after reports suggested the role could go to Shabana Mahmood, who is viewed as a centrist, rather than a candidate with a more left-leaning policy agenda.

Chris Turner, Global Head of Markets at ING, said in a note that while sterling could continue to benefit from early optimism surrounding the new government, the UK's tight fiscal position means the administration may ultimately have to raise taxes if it intends to improve public services such as social care.

In other currency markets, the US dollar fell 0.17% against the offshore Chinese yuan to 6.7663 after the People's Bank of China left its benchmark lending rates unchanged for a 14th consecutive month, in line with market expectations.

Against the Japanese yen, the dollar was little changed at 162.34 as trading volumes remained subdued due to the Marine Day holiday in Japan.

Markets expect Fed to keep rates unchanged

Markets continue to expect the Federal Reserve to leave interest rates unchanged at its next meeting on July 29.

Fed funds futures currently imply an 85.6% probability that rates will remain on hold, up from 61.5% a month ago, according to the CME FedWatch Tool.

Meanwhile, Cleveland Federal Reserve President Beth Hammack joined a growing number of policymakers on Friday arguing that interest rates may need to rise further to contain persistent inflation.

Her comments set the stage for what could be a closely watched policy debate at the Fed's upcoming meeting, with the possibility of differing views emerging during Kevin Warsh's second meeting as Federal Reserve Chair.