SYDNEY, Dec 10 (Reuters) - The dollar was firm on Friday ahead of U.S. inflation figures, which could settle the course of interest rates, while the Chinese yuan was nursing its sharpest drop in months after a nudge lower from authorities triggered a slide. The euro , seen as vulnerable from U.S. hikes especially if European rate rises lag behind, dropped 0.4% overnight and was under pressure in Asia at $1.1293. The dollar index , at 96.212, is drifting toward its seventh consecutive weekly rise ahead of the data, which is due at 1330 GMT. Annual price gains of 6.8% are expected and any upside surprise will likely be interpreted as a case for a faster Federal Reserve taper and sooner interest rate rises. Consumer confidence data is also due on Friday and if it holds up could portend even more price pressures ahead."Inflation is going accelerate," said Tom Porcelli, RBC Capital Markets’ chief U.S. economist, who thinks the annual pace is going to rise and keep rising to push near 7% early in the new year. "As a result, we think that combination means a hike in March is very possible," he said. "The market is pricing in about a 40% chance of that, but we now think it"s a bit higher. It"s probably closer to a coin flip now." The Fed, European Central Bank, Bank of England and Bank of Japan also all meet next week and the combination of the inflation data and the possibility of a central bank response have set market volatility gauges surging . "Judging by the way the dollar is trading...I"d argue traders are positioning for a higher CPI print which cements a view that the Fed will increase the pace of tapering its QE programme," said Chris Weston, head of research at Pepperstone. "While form suggests we get a beat, we obviously can"t dismiss a poor number, and of course an inline print - I think if we get 6.4% or below then AUD/USD should fly." BUMPY Volatility has also been stoked by the ebb and flow of concern about the Omicron variant and by policy in China. A slight rise in the safe-haven yen overnight pointed to persistent caution, although a broad relaxation of concern in earlier sessions has the Aussie dollar up more than 2% this week and within sight of its largest weekly rise since August. The yen was last steady at 113.44 per dollar, just above its 50-day moving average. The Aussie has bounced back hard from 70 cents to hover around $0.7149. The yuan , meanwhile, was dunked about half a percent in offshore trade on Thursday to 6.3800 per dollar after the People"s Bank of China (PBOC) raised FX reserve requirements for the second time since June. read more Analysts said that would encourage yuan selling and cool a rise that has lifted it more than 2% against the dollar since late July. "It also sent a clear signal on PBOC"s discomfort on the rapid and continued appreciation of the currency," Goldman Sachs analysts said in a note. Elsewhere, sterling has been under pressure as England has tightened restrictions to try and curb the spread of the Omicron variant. It last bought $1.3222. The New Zealand dollar has actually been weighed down by aggressive hike prospects, with traders expecting that to drag on future growth. It hovered at $0.6795 in Asia. Cyrptocurrencies have also copped a bit of a kicking from risk aversion and bitcoin struggled for traction above $50,000. It was last at $48,100. Reporting by Tom Westbrook; Editing by Sam Holmes Our Standards: The Thomson Reuters Trust Principles.