Forex - Dollar makes cautious gains as market preps for Fed tapering

The dollar traded mixed to higher against most major currencies on Friday after investors digested comments from several Federal Reserve officials over the week and decided stimulus programs will begin to unwind this year.

Monetary stimulus programs such as monthly asset purchases push down long-term borrowing costs to spur recovery, weakening the greenback in the process, though talk of their dismantling can strengthen the greenback.

In U.S. trading on Friday, EUR/USD was down 0.28% at 1.3342.

France reported earlier that the country's industrial production dropped 1.4% in June, disappointing expectations for a 0.1% rise. May's figure was revised to a 0.3% contraction from a previously estimated 0.4% decline. 

The numbers weakened the euro, while the dollar saw some support on market sentiments that Federal Reserve monetary stimulus that weaken the greenback to spur recovery will begin to taper in September or December — either way in the near future.

Cleveland Fed President Sandra Pianalto said Wednesday there has been “meaningful improvement” in the labor market and that tapering may be warranted if it continues to strengthen.

Chicago Fed President Charles Evans and Dallas Fed President Richard Fisher have made similar comments.

Fed officials have said they will pay close attention to data before deciding on when to taper and eventually end stimulus programs

The greenback was up against the pound, with GBP/USD down 0.19% at 1.5509.

The pound rose earlier after the Office for National Statistics said that the U.K. trade deficit narrowed by more than expected in June, improving to GBP8.08 billion from a deficit of GBP8.67 billion the previous month. 

Analysts had expected the trade deficit to narrow to GBP8.50 billion in June, though the dollar regained strength after 

The dollar was down against the yen, with USD/JPY down 0.55% at 96.18, and up against the Swiss franc, with USD/CHF trading up 0.16% at 0.9218.

The dollar was down against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.42% at 1.0285, AUD/USD up 1.02% at 0.9196 and NZD/USD trading up 0.42% at 0.8042.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.10% at 81.16.