* Gasoline buoys U.S. consumer prices; underlying inflation tame
* Pound rises to a nearly two-week high vs dollar (Adds U.S. market open; changes dateline; previous LONDON)
By Saqib Iqbal Ahmed
NEW YORK, Oct 13 (Reuters) - The dollar slipped against a basket of currencies on Friday after data showed U.S. consumer prices rose less than expected in September, pointing to muted inflation that could worry Federal Reserve officials.
The Labor Department said on Friday its Consumer Price Index jumped 0.5 percent last month after advancing 0.4 percent in August. Economists polled by Reuters had forecast a 0.6 percent increase.
September’s increase was the biggest in eight months, but it stemmed mostly from soaring gasoline prices after hurricane-related production disruptions at Gulf Coast area oil refineries. Underlying inflation remained muted.
The dollar index, which tracks the greenback against six major currencies, was down 0.19 percent at 92.883 after falling to a more than two-week low of 92.749.
The dollar fell to 111.7 Japanese yen, its lowest since Sept. 26.
The Fed has raised its benchmark rate twice this year and signalled a third hike later this year.
Financial markets are pricing a roughly 88 percent probability of a rate increase in December, according to CME Group’s FedWatch tool.
The disappointing consumer price data “basically puts more pressure on the Fed to look at inflation,” said Alfonso Esparza, senior currency analyst at Oanda in Toronto. “It puts the December rate hike more into question.”
Minutes of the Fed’s Sept. 19-20 meeting published on Wednesday showed policymakers had a prolonged debate about the prospects of a pickup in inflation and slowing the path of future interest rate rises if it did not.
Policymakers could, however, find solace from another report indicating the economy was recovering swiftly from the damage inflicted by Hurricanes Harvey and Irma, with a strong rebound in retail sales last month.
The weaker dollar helped buoy Britain’s pound to a nearly two-week high against the dollar.
Sterling, which earlier skidded as Germany told Britain “time is running out” to get the deal it wants on Brexit, rebounded to trade up 0.32 percent at $1.3302.
The euro hit a session high of $1.1855 against the dollar and was up 0.22 percent.
The common currency was on pace for its biggest weekly rise in a month as investors put political concerns on the back burner and focused on expectations that the European Central Bank would outline plans to unwind its huge stimulus program. (Reporting by Saqib Iqbal Ahmed; Editing by Lisa Von Ahn)