NEW YORK/GDANSK, Feb 18 (Reuters) - The U.S. dollar advanced against major currencies on Tuesday, with losses led by the euro, garnering safe-haven bids amid tariff concerns and peace negotiations on the Russia-Ukraine conflict that are fraught with tension and miscommunication.
The Australian dollar, meanwhile, initially held near two-month highs after the Reserve Bank of Australia cut rates but cautioned on further easing. But the swell of broad dollar buying amid global geopolitical stress has temporarily eroded support for the Australian currency.
Traders were keeping an eye on the Riyadh talks involving U.S. and Russian officials on Tuesday aimed at ending the Ukraine war. Ukraine President Volodymyr Zelenskiy said no peace deal could be made behind his country's back. He postponed his visit to Saudi Arabia planned for Wednesday until March 10.
"Last week, there was a lot of optimism about the prospect that the U.S. would reveal some...contours around a peace deal in Russia and Ukraine," said Thierry Wizman, global rates and FX strategist, at Macquarie in New York. "That hasn't happened. And it has been mostly the euro which has taken the beating."
In midmorning trading, the euro fell 0.3% to $1.0453 , retreating for a second straight session. Last week, the euro rose to a two-week high on hopes of a peace deal.
Russia has hardened its demands for a peace deal, demanding that NATO go further by disavowing a promise it made at a summit in Bucharest in 2008 that Ukraine would join at a future, unspecified date.
U.S. President Donald Trump, meanwhile has threatened new tariffs on the European Union due to trade surpluses it had with the United States, in a widening offensive that economists say could trigger a global economic slowdown.
Against the yen, the dollar edged 0.1% higher to 151.665 . It pared gains after data showed U.S. homebuilder sentiment tumbled to a five-month low in February on worries that tariffs on imports would combine with higher mortgage rates to further drive up housing costs.
The National Association of Home Builders/Wells Fargo Housing Market Index plunged five points to 42 this month, the lowest reading since September.
The yen has been on the back foot after its recent gains as strong growth data bolstered odds of the Bank of Japan raising interest rates again this year, with July seen as a live meeting.
Japan's solid October-December GDP data on Monday, coupled with recent inflation numbers, have helped lift the yen. It is up 3.5% against the dollar so far in 2025.
Sterling eased 0.1% to $1.2615, hurt by a strong dollar despite data showing accelerating British wage growth.
Investors will also be focused on Wednesday's release of minutes of the Federal Reserve's meeting in January that may show how policymakers have accounted for the risk of a broader tariff war resulting from President Donald Trump's trade policies.
Data last week showed U.S. consumer prices increased at the fastest pace in nearly 18 months in January, reinforcing the Fed's message that it was in no rush to resume cutting rates amid growing economic worries.
U.S. rate futures have priced in about 39 basis points (bps) of easing in 2025, compared with 41 bps late Friday, according to LSEG estimates, using the January 2026 futures contract. Futures also implied that the Fed will likely resume cutting rates again either at the September or October policy meeting.
The dollar index , which measures its performance against six other major currencies, was 0.2% higher at 106.92, but still not far from the two-month low of 106.56 it touched on Friday.
In Australia, the RBA cut its cash rate by 25 bps to 4.10% on Tuesday in its first easing since the 2020 pandemic and said it was cautious about prospects of further policy easing.
That left the Australian dollar flat at US$0.6354 after an initial burst of choppiness following the decision. The Aussie touched a two-month high of US$0.6374 on Monday and was up 2.4% in February.
Swaps imply just a 20% probability for a follow-up cut in April, although a move in May is still almost fully priced in.
Currency bid prices at 18 February 03:46 p.m. GMT
Reporting by Greta Rosen Fondahn in Gdansk and Gertrude Chavez-Dreyfuss in New York; Additional reporting by Ankur Banerjee in Singapore; Editing by Christopher Cushing, Tomasz Janowski and Chizu Nomiyama
