By James Ramage 

The dollar soared to a monthly high against the euro on Thursday on expectations of higher U.S. interest rates and in anticipation of Europe's massive stimulus program.

The euro dropped 1.5% to $1.1194 in late-afternoon trade, its lowest level since Jan. 26. The common currency recorded its largest one-day decline in more than a month and sits a penny above its lowest level since April 30, 2003.

The dollar rose 0.5% to 119.46 yen.

Early in the day, renewed investor focus on the March launch of the European Central Bank's asset-purchase program drove down the euro as well as the yields on many eurozone government bonds. The central bank's planned $68 billion monthly purchases, which involve printing new money to buy debt securities, are expected to weigh on the common currency.

The dollar's rise against the euro accelerated after inflation and durable-goods orders in the U.S. were firmer than expected, suggesting the economy is strengthening toward levels that will persuade the Federal Reserve to raise interest rates.

The U.S. currency's gains marked a turnaround from two days of modest losses after Fed Chairwoman Janet Yellen's testimony to Congress depressed investor interest in the U.S. currency. Her cautious stance on interest rates damped hopes that the central bank would raise borrowing costs around midyear.

The consumer price index fell a seasonally adjusted 0.7% last month from December, the Labor Department said. But prices that exclude volatile food and energy, a key measure for the Fed, rose 0.2% last month and increased 1.6% from a year earlier. Economists had predicted a 0.6% decline in overall prices last month from December and expected a 0.1% gain for core prices for January.

The core inflation number gave the dollar momentum, said Camilla Sutton, chief currency strategist at Scotiabank. The Fed has said it would look past the effects of plunging oil prices on inflation, which the central bank predicted would be temporary.

"From the Fed's perspective, a stabilization in core inflation, combined with a strengthening in the employment numbers, are what they want to see," Ms. Sutton said. "And seeing the core numbers is encouraging for those who expect a June rate hike."

In addition, orders for manufactured goods such as household appliances and automobiles climbed 2.8% in January from a month earlier, the Commerce Department said. Economists had forecast orders to rise 0.6%.

The Federal Reserve has indicated it would raise interest rates when the economy is firmly on the road to recovery. Higher interest rates would boost returns for U.S. assets, drawing more investors to the dollar. U.S. interest rates have been near zero since 2008.

--Write to James Ramage at james.ramage@wsj.com