LONDON—The dollar rose to 16-month highs against the euro and other currencies on Thursday, and the yen fell back towards multi-year lows, after the hottest U.S. inflation reading in a generation encouraged bets on interest rate hikes. U.S. consumer prices grew last month at their fastest annual pace since 1990, data showed, and traders think the Federal Reserve could respond by lifting interest rates faster than peers in Europe and Japan. The euro was pummelled, as the European Central Bank is seen lagging on policy tightening. It slipped further to $1.1459 on Thursday, its lowest since July 2020. Sterling was also marginally down on Thursday at a new 11-month low of $1.3388, with better-than-expected GDP data in Britain doing little to support the pound. The yen extended a sharp reversal of recent gains to 114.15 per dollar—close to the Japanese currency’s four-year low of 114.69 reached last month. The Australian …