By Hannah Lang and Elizabeth Howcroft

WASHINGTON/LONDON (Reuters) – The dollar fell on Friday but was still on track for its biggest annual gain since 2015, in the last trading day of a year dominated by Federal Reserve rate hikes and fears of a sharp slowdown in global growth.

Asian equities had risen earlier in the session after market sentiment on Wall Street got a boost on Thursday from data showing rising U.S. jobless claims, which suggested the Fed’s interest rate hikes were lowering demand for labor.

With liquidity lower due to holidays, the was down around 0.308% on the day at 103.650.

The U.S. Federal Reserve has raised rates by a total of 425 basis points since March in an attempt to curb surging inflation.

As 2022 draws to a close, the dollar has gained around 8% against a basket of currencies – its biggest annual jump in seven years – but it has pared some gains in recent weeks as investors look for signs about when the Fed’s rate-hiking cycle might end.

“I think everyone is struggling with the question of whether the big problem in 2023 will be weak growth or stubborn inflation,” said Adam Button, chief currency analyst at ForexLive.

“If it’s weak growth, the U.S. dollar will fall. If it’s high inflation, then the U.S. dollar will rally,” he added.

The euro was up 0.22% on the day to $1.0684, on track for a 6% annual loss versus the dollar, compared with last year’s 7% drop. A combination of weak eurozone growth, the war in Ukraine and the Fed’s hawkishness has put the euro under pressure this year.

The British pound was last up 0.21% at $1.2077, set for a 10.7% annual drop.

The Australian dollar, seen as a liquid proxy for risk appetite, was up 0.12% on the day at $0.679, but on track for a 6.5% drop on the year overall.

China’s was down 0.91% against the U.S. dollar at $6.9092. It was set for an 8.6% annual drop, hurt by dollar strength and a domestic economic slowdown.

Optimism about China’s reopening after three years of strict COVID-19 curbs has been tempered by surging infections which threaten more economic disruptions.

Jan Von Gerich, chief analyst at Nordea, said China’s reopening “will be a source of volatility.”

“But when we get past that, when we really get to the really positive economic impact, I think it should boost risk appetite globally,” he said.

The U.S. dollar was down around 0.91% against the Japanese yen, at 131.820..

The Bank of Japan’s ultra-dovish stance has seen the dollar gain 14.5% versus the yen so far this year, in the yen’s worst performance since 2013. But the Bank of Japan’s surprise decision to tweak its bond yield control program saw the yen jump to a four-month high against the U.S. dollar earlier in December.

The Swiss franc was steady versus the dollar, at 0.92250.

The Swiss National Bank increased the amount of the Swiss currency it sold in the third quarter of 2022, the central bank said on Friday, indicating that its focus has switched from stemming the franc’s strength to fighting inflation.

In cryptocurrencies, bitcoin last fell 1.13% to $16,405, down more than 64% so far in 2022.

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Currency bid prices at 10:00AM (1500 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.6500 103.9800 -0.31% 8.349% +104.1000 +103.4900

Euro/Dollar $1.0685 $1.0662 +0.23% -6.00% +$1.0700 +$1.0639

Dollar/Yen 131.8300 133.0300 -0.91% +14.51% +133.0900 +131.5050

Euro/Yen 140.90 141.81 -0.64% +8.12% +141.8900 +140.3700

Dollar/Swiss 0.9223 0.9228 -0.04% +1.12% +0.9250 +0.9200

Sterling/Dollar $1.2074 $1.2054 +0.20% -10.69% +$1.2107 +$1.2011

Dollar/Canadian 1.3543 1.3549 -0.04% +7.11% +1.3563 +1.3515

Aussie/Dollar $0.6785 $0.6777 +0.16% -6.62% +$0.6809 +$0.6752

Euro/Swiss 0.9854 0.9841 +0.13% -4.97% +0.9868 +0.9831

Euro/Sterling 0.8848 0.8841 +0.08% +5.33% +0.8876 +0.8823

NZ $0.6344 $0.6350 -0.02% -7.24% +$0.6372 +$0.6317

Dollar/Dollar

Dollar/Norway 9.8385 9.8750 -0.41% +11.64% +9.9085 +9.8315

Euro/Norway 10.5177 10.5278 -0.10% +5.04% +10.5625 +10.4982

Dollar/Sweden 10.4042 10.4548 -0.28% +15.37% +10.4905 +10.3737

Euro/Sweden 11.1174 11.1490 -0.28% +8.63% +11.1675 +11.0773