* U.S. Jan CPI data soothes jitters about disinflation
* Euro falls to 1-month low vs dollar, 3-week low vs yen
* Dollar index rises to highest in a month (Updates market action; changes dateline, previous LONDON)
By Richard Leong
NEW YORK, Feb 26 (Reuters) – The dollar climbed to a one-month high against a basket of currencies on Thursday as data on U.S. inflation and business orders revived confidence in the world’s biggest economy and supported bets the Federal Reserve will raise interest rates in the middle of the year.
The greenback also got support from remarks by St Louis Federal Reserve chief James Bullard, who said the strong dollar was having only a marginal impact on U.S. monetary policy and the economy.
Bullard, speaking on CNBC television, also said the U.S. central bank, where he is a non-voter on policy, should drop its reference to “patience” next month in describing its approach to tightening policy.
The dollar’s jump followed back-to-back days of losses stemming from perceived dovish signals from Fed Chair Janet Yellen in her semi-annual testimony before Congress.
On Thursday, the government said the consumer price index, its broadest inflation gauge, fell 0.7 percent in January due to the steep drop in oil prices, but its core reading, which excludes volatile food and energy costs, rose 0.2 percent, faster than the 0.1 percent rise economists had forecast.
“It undermined the view that there’s domestic disinflation. It’s more an international story about falling prices in goods and commodities,” said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.
Another encouraging report on the U.S. economy showed a rebound in durable goods orders in January. They rose 2.8 percent.
The CPI and durables readings were tempered by a bigger-than-expected jump in filings for first-time jobless benefits, raising some concerns about the U.S. labor market.
The dollar index climbed to one-month highs, and last traded up 1 percent at 95.224.
The euro tumbled 1.4 percent against the greenback, slumping to a one-month low at $ 1.1198 on the EBS trading system . It slipped to three-week lows versus the yen, last down 0.9 percent at 133.70 yen.
The greenback gained nearly 0.4 percent against the yen to 119.27 yen.
Sterling weakened 0.8 percent versus the dollar to $ 1.5409 .
Some analysts downplayed the dollar’s bounce, saying Yellen’s testimony before Congress dampened expectations the Fed will end its near zero rate policy soon.
A further rise in the greenback is unlikely until later this year when the Fed might signal its move to begin normalize policy, they said.
“The pause in the dollar rally will likely extend for another month or two,” said Greg Anderson, global head of FX strategy at BMO Capital Markets in New York.
(Additional reporting by Patrick Graham, Anirban Nag in London; Editing by Toby Chopra, Jane Merriman and Peter Galloway)
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