A Euro banknote is seen placed on U.S. Dollar banknotes in this illustration taken, November 28, 2021.
A Euro banknote is seen placed on U.S. Dollar banknotes in this illustration taken, November 28, 2021. Reuters / DADO RUVIC

The dollar initially rose against major currencies on Thursday after U.S. consumer prices in January came in higher than expected, but it later fell amid expectations of other central banks joining the Federal Reserve in fighting rising inflation.

The consumer price index rose 0.6% from December, the Labor Department said, while in the 12 months through January, CPI jumped 7.5%, the biggest year-on-year gain since February 1982.

The data marked the fourth straight month of annual increases in excess of 6%, driving the dollar index, a gauge of the greenback's value against six major currencies, to rise almost 0.5%, before retreating. It was last down 0.36%.

The hot reading added fuel to expectations the Fed will raise interest rates when policymakers meet in March, with the futures market showing chances of a 50 basis point hike about even with a 25 basis point rise.

"The market is shifting its positioning, it's something that investors can't ignore," said Kathy Lien, managing director at BK Asset Management. "The confirmation that we've got hot inflation means that it's all-go on monetary tightening."

The dollar reversed course as the market mulled how other central banks will fight inflation that's on the rise globally.

Against the euro, the European common currency rose 0.53% to $1.1483, while the Japanese yen weakened 0.32% versus the greenback at 115.86 per dollar.

"Not only did (CPI) really change expectations for the Fed, but it also impacted on how progressive the BoE will be," said Edward Moya, senior market analyst at OANDA, referring to the Bank of England.

"This broader, widespread pricing pressures is a global story. We're starting to see a lot of these other advanced economies are now becoming more aggressive in tackling inflation."

Rates jumped after the CPI data was released. The two-year U.S. Treasury yield, which typically moves in step with rate expectations, rose 15.5 basis points to 1.503%. The yield on 10-year Treasury notes topped 2% for the first time in 2-1/2 years.

Earlier in Europe, the Swedish central bank kept its monetary policy plans broadly unchanged and stressed its view that surging inflation is temporary.

The dovish stance by the Riksbank led the dollar to post its biggest gain among major currencies, rising 1.9% at one point against the Swedish crown. It later pared losses to fall 0.91% versus the greenback at 9.21 per dollar.

Last week, the European Central Bank caught investors off guard as it adopted a hawkish tone, prompting euro-dollar to jump to a three-week high of $1.1483.

Earlier, the Japanese yen hit a one-month low versus the dollar. The Bank of Japan said it would intervene in markets by offering to buy an unlimited amount of 10-year Japanese government bonds at 0.25%.

In cryptocurrencies, Bitcoin last rose 1.72% to $45,245.25.