Forex - Dollar gains as IMF trims forecasts, China, U.K. data support

The dollar strengthened against most major currencies on Tuesday after the International Monetary Fund trimmed its global growth forecasts for this year and the next, which sparked safe-haven demand for the U.S. currency

In U.S. trading on Tuesday, EUR/USD was down 0.61% at 1.2791.

The IMF cut its 2013 global growth forecast to 3.1% from a 3.3% prediction made in April and revised its 2014 growth forecast to 3.8% from 4.0%.

The IMF added that the euro zone economy should contract by 0.6% this year compared to a 0.4% contraction forecast in April, which weakened the euro. 

The single currency saw added pressure after European Central Bank President Mario Draghi reiterated anew that interest rates will remain low for an extended period of time to support the euro zone economy.

Meanwhile, the dollar saw added support on growing expectations for the Federal Reserve to begin tapering its USD85 billion bond-buying program later this year and end it next year.

Such monetary stimulus programs weaken the greenback to spur recovery, and talk of their dismantling can bolster the U.S. currency.

Elsewhere, China reported earlier that consumer prices rose 2.7% in June from a year earlier, above expectations for a 2.5% increase and accelerating from a 2.1% rate of increase in May, which gave the greenback support as investors digested the data.

The greenback was up against the pound, with GBP/USD trading down 0.54% at 1.4872.

The Office for National Statistics said earlier that U.K. manufacturing production contracted 0.8% in May, defying expectations for a 0.3% increase. 

Manufacturing production fell at an annual rate of 2.9% in May, far outpacing expectations for a 1.6% decline. 

The ONS also said that industrial production came in flat in May, disappointing expectations for a 0.2% increase, and was 2.3% lower on a year-over-year basis.

Separate data showed that the U.K. trade deficit widened to GBP8.49 billion in May from a deficit of GBP8.43 billion in April. Economists had forecast a deficit of GBP8.47 billion.

The dollar was unchanged against the yen, with USD/JPY down 0.01% at 100.97, and up against the Swiss franc, with USD/CHF trading up 0.94% at 0.9726.

The dollar was down against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.28% at 1.0530, AUD/USD up 0.62% at 0.9190 and NZD/USD trading up 0.78% at 0.7861.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.42% at 84.79.

In the U.S. on Wednesday, the Federal Reserve is to publish the minutes of its latest policy setting meeting, while Fed Chairman Ben Bernanke is scheduled to appear in public as well.