The Labor Department said its Consumer Price Index increased 0.3 percent last month. In the 12 months through September, the CPI rose 1.5 percent, the biggest year-on-year increase since October 2014.
The dollar move largely tracked U.S. Treasury yields, which initially fell on the data before reversing course and rising, said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago.
"It's tracking the bond market most market participants are looking at the Fed for a potential hike in December and as the odds of that increase or decrease there's some correlation with how the dollar's moving," Scalone said.
The British pound was one of the best performers after a government lawyer said parliament would "very likely" have to ratify any deal to take Britain out of the European Union, and following stronger-than-expected inflation numbers.
"That took a market that was overly short and put in a little bit of uncertainty to whether Brexit would be enacted sooner rather than later. That has squeezed some of the shorts," said Scalone.
The pound was last up 0.90 percent against the dollar at $1.2291.