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Feb 18 (Reuters) - The dollar index rose on Tuesday as hopes for a speedy Ukraine peace deal faded, while a stronger-than-expected Empire State business conditions index report helped push Treasury yields higher. The United States and Russia agreed to press ahead with efforts to end the war in Ukraine after holding discussions, though Russian foreign ministry representatives dismissed the idea that NATO member forces could be keepers of the peace under some sort of ceasefire deal. Ukraine President Volodymyr Zelenskiy postponed his visit to Saudi Arabia after saying a peace deal could not be held behind Ukraine's back. San Francisco Fed President Mary Daly said the U.S. central bank should keep short-term borrowing costs where they are until progress on inflation is more visible. Treasury auction results and FOMC minutes will be scrutinized during a light week of economic data until manufacturing and services PMIs on Friday. EUR/USD fell 0.4% on less optimism about Ukraine and wider bund-Treasury 2-year yield spreads. European Central Bank interest rate cuts should compensate for the tightening impact of the bank's balance sheet runoff, board member Piero Cipollone said, hinting that borrowing costs may need to go lower than some think. Further EUR/USD losses would see the pair test its 55-day moving average and 21-day moving average just above 1.04, though low levels of volatility suggest downside risks are limited. Accounts continue to accumulate longer-dated euro call options anticipating a surge later this year. GBP/USD pulled back from a 1.2635 year-to-date high set Monday as Bank of England Governor Andrew Bailey downplayed solid U.K. employment data released on Tuesday. Focus is on an inflation reading for January due on Wednesday.
USD/JPY pushed higher with Treasury yields though a lack of momentum kept the pair in a narrow 151.23-152.22 trading range. Bank of Japan board member Hajime Takata is slated to speak on Wednesday.
Treasury yields were up 4 to 6 basis points. The 2s-10s curve was up about 2 basis points to +24.2bps.
The S&P 500 index was little changed after giving up earlier gains.
WTI oil rose 1.6% amid concerns about supply disruptions.
Gold rose 1.2% on haven demand, while copper slid 1.5% as dollar firmed.
Heading toward the close: EUR/USD -0.38%, USD/JPY +0.31%, GBP/USD -0.21%, AUD/USD -0.11%, =USD +0.33%, EUR/JPY -0.06%, GBP/JPY -0.09%, AUD/JPY +0.19%.(Editing by Terence Gabriel Reporting by Robert Fullem)
