Mine have always done that - it's a really good sign that everything is working properly!
It shoots up to about 5/8 scale because the thermostat is closed - to promote fast warm-up. Then the thermostat opens, cold water from the radiator starts to flow, and the temperature drops very quickly to 1/2 scale and stays there.
The overshoot is inevitable - all thermostats in all situations have a slightly different cut-in from cut-out temperature.
I have occasionally had one in a Volvo that started to get slow to cut-in. On testing I found it was sticking. Get a proper Volvo one not a universal fit.
Incidentally to get heat soonest from the heater, keep it turned off until after that initial temperature drop. If you open it too soon, or have just left it open from last use, it delays engine warm-up and you are only blowing cold air out of the vents. I keep trying to explain that to my wife, but she just says, as soon as we get in the car "Can we have some heat now?"
