Above: GBP/USD at one-minute intervals showing the post-inflation release action.
The dollar was softer after U.S. inflation grew 0.3% month-on-month in September, which was less than the 0.4% the market expected.
This represents a step-down in inflation's growth, and makes next week's Federal Reserve interest rate cut less controversial.
In fact, markets are reading the softer increase as a signal to increase bets for more rate cuts over the coming months.
The headline annual rate of inflation fell to 3.0% from 3.1%, undershooting consensus positioning for a repeat 3.1% outcome.
With further Fed rate cuts being 'priced in', the dollar retreats. "As the Fed resumes its easing cycle, previous episodes of cutting whilst the US economy avoided a recession points us to a weaker USD," says Paul Mackel, head of FX research at HSBC.
Consistent with the anticipation of rate cuts, the pound to dollar exchange rate (GBP/USD) rises to 1.3340 from pre-release levels of 1.33. (The GBP/USD forecast survey results for Q4 are now out, see where the consensus amongst the big investment banks lies).
Although inflation is well above the Federal Reserve's 2.0% target, the Fed looks intent on viewing this situation as a result of one-off changes to the price level induced by tariffs.
This allows them to focus on the labour market, which is certainly slowing down and could use lower rates to protect jobs.
Non-farm payroll increases were running at 160k per month in 2024 and are down to 22k in August.
"The Fed can tolerate inflation around 3%," says Nigel Green, CEO of deVere Group. "What it cannot risk is a rise in unemployment that damages confidence and spending. The labour data will determine the pace and depth of future rate cuts."
The dollar has strengthened through October and it's too soon to call a resumption of the selloff seen in H1 of this year, but these inflation figures and next week's cuts will go some way in blocking its advance from here.