Updates to New York morning trading

By Chuck Mikolajczak

NEW YORK, July 20 (Reuters) - The dollar rose on Monday as investors eyed developments in the Iran war, while the pound fell from earlier highs as markets prepared for new British Prime Minister Andy Burnham.

Yemen's Iran-aligned Houthis said they were imposing a naval blockade on Saudi Arabia, a move that opens a new front against the United States in its war on Iran and widens the threat to global energy supplies and trade beyond the Gulf.

Crude prices came off their initial move higher, however, as Tehran and Washington signaled they wanted to resume diplomacy.

U.S. crude CLc1 was up just 0.01% at $82.50 a barrel and Brent LCOc1 rose to $88.17 per barrel, up 0.08% on the day, after earlier hitting their highest levels in more than a month.

The dollar index =USD, which measures the greenback against a basket of currencies, climbed 0.17% to 100.91, with the euro EUR= down 0.23% at $1.1413.

"There's a lot of conflicting news coming from the Middle East, on one hand, it looks like it could be escalating, on the other hand, it looks like there's another like last ditch effort to try to like get a new ceasefire and that's why oil came off," said Marc Chandler, chief market strategist at Bannockburn Capital Markets in New York.

The economic calendar for the week is light, and Federal Reserve officials are in a "blackout period" of public comments ahead of the central bank's meeting next week.

Recent reports on U.S. inflation and the labor market have caused markets to sharply curb expectations for a rate hike from the Fed next week, pricing in only a 14.4% chance for an increase, according to CME Fedwatch, down from more than 40% a week ago. Expectations for a hike at the September meeting are at 65.5%, however.

A bevy of Fed officials, including Chairman Kevin Warsh, have flagged concerns about inflation pressures in recent weeks while noting the labor market remains stable.

The European Central Bank will hold a policy meeting later this week, with markets pricing in only a 13.1% chance of a hike, according to LSEG data, with a 77.9% chance for an increase at its September meeting.

UK CHANCELLOR CHOICE IN FOCUS

Sterling GBP= weakened 0.04% to $1.3448 after climbing to $1.3481 as Burnham took over from Keir Starmer, becoming Britain's seventh Prime Minister in a decade as he pledged to reshape the country's politics and deliver a new economic model.

Traders are especially keen to see who Burnham will pick as the new finance minister 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.

"We're all waiting to see who Burnham puts in as chancellor but the gilts are underperforming here today," said Chandler.

Elsewhere, the U.S. dollar was down 0.14% at 6.7688 against the Chinese yuan CNH= 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 JPY=, the dollar strengthened 0.09% to 162.54 in thin liquidity as Japan observed the Marine Day holiday.