The dollar has extended its recent gains against its major European competitors on Tuesday, as the risk appetite of investors remained low. The decision by the International Monetary Fund to cut its global growth estimate for this year as well as the next has further rattled investors, as debt concerns in Europe linger.

Stepping up its warning against deteriorating economic conditions across the globe, the International Monetary Fund on Tuesday said the risks for a ‘serious global slowdown are alarmingly high.’ The global economy is now expected to expand 3.3 percent in 2012, weaker than the 3.5 percent growth projected in July, the lender said in its ‘World Economic Outlook’ report. The growth outlook for 2013 was cut to 3.6 percent from the previous 3.9 percent.

According to the IMF, the probability of global growth falling below 2 percent in 2013 has risen to about 17 percent, up from about 4 percent in April 2012.

The U.S. economy will likely expand 2.2 percent this year, faster than the 2.1 percent growth forecast in July. However, the growth forecast for 2013 was revised down by 0.1 percentage point to 2.1 percent.

The Fund said “it is imperative to avoid excessive fiscal consolidation or the fiscal cliff in 2013.” It urged the U.S. authorities to raise the debt ceiling promptly, and to agree on a credible medium-term fiscal consolidation plan.

The real GDP growth of the euro area is projected to decline by 0.4 percent in 2012, steeper than the 0.3 percent contraction projected earlier. GDP is expected to grow 0.2 percent in 2013, slower than the 0.7 percent expansion projected earlier.

According to the report, the “core” economies are expected to see low but positive growth throughout 2012-13. Most euro area “periphery” economies are likely to suffer a sharp contraction in 2012, constrained by tight fiscal policies and financial conditions, and to begin to recover only in 2013.

Greece’s creditors on Monday allotted ten days to the country to fulfill the reform pledges before deciding on the next loan tranche of 31.5 billion euros. At the same time, the euro area ministers hailed the fiscal consolidation efforts of the coalition government led by Antonis Samaras, raising hopes of a positive decision at the upcoming EU summit.

Also, at the Eurogroup meeting held in Luxembourg on Monday, euro area finance ministers officially launched the European Stability Mechanism (ESM), the single-currency bloc’s 500-billion euros permanent bailout fund.

Eurozone finance chiefs also endorsed the latest austerity measures announced by the Spanish government and indicated that the aid for Spanish banks from ESM will likely start in November.

European Central Bank President Mario Draghi on Tuesday said the euro area economy faces more risks to growth and is expected recover only gradually. “We expect weak economic activity in the near term and only a very gradual recovery after that,” Draghi said during a hearing at the Committee on Economic and Monetary Affairs of the European Parliament in Brussels.

The dollar extended its recent gains against the Euro Tuesday, climbing to over a one-week high of $1.2861, from the low of $1.3070 on Friday.

France’s trade deficit for the month of August increased from a year ago and came in slightly above economists’ expectations, data released by the Customs Office showed Tuesday. The foreign trade deficit widened to EUR 5.286 billion from EUR 4.894 billion in the same month last year. Economists had forecast a deficit figure of EUR 5 billion.

The buck also extended its recent gains against the pound sterling Tuesday, reaching nearly a 1-month high of $1.5975, after rebounding from Friday’s low of $1.6216.

U.K. industrial output declined 0.5 percent in August from a month ago, when it rose 2.8 percent, the Office for National Statistics showed Tuesday. The rate of decline matched economists’ expectations.

Manufacturing output, at the same time, was down 1.1 percent, following a 3.1 percent rise in July. The month-on-month fall exceeded the 0.7 percent decrease forecast by economists.

The U.K.’s trade in goods resulted in a higher-than-expected deficit in August, data released by the Office for National Statistics (ONS) showed Tuesday. The visible trade deficit widened to GBP 9.8 billion in August from GBP 7.3 billion in July. Economists expected a deficit of GBP 8.5 billion.

Japan and South Korea agreed to end the temporary measure to increase the maximum amount of the bilateral currency swap arrangements as of October 31 as scheduled.

The finance ministers and the central banks of both nations concluded that the extension of the expanded bilateral swap arrangement is unnecessary given the stable financial markets and the sound macro-economic conditions, the Bank of Korea and the Bank of Japan said in a joint statement.

The greenback has remained basically flat against the Japanese Yen on Tuesday, hovering around the Y78.300 level, which is slightly above Monday’s low of Y78.068.

Japan posted a current account surplus of 454.7 billion yen in August, the Ministry of Finance said on Tuesday, up 4.2 percent on year. The headline figure beat forecasts for a surplus of 421.1 billion yen (down 3.7 percent) but declined from the surplus of 625.4 billion (-40.6 percent) yen in July.

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