US inflation was 7.1% in November, down from a 40-year high of 9.1% in June and just a small increase on October's price rises.
The pound can buy more dollars than at any point in the last six months after the US rate of inflation slowed to its lowest rate in nearly a year.
One pound could buy $1.24 on Tuesday afternoon, the highest amount since early June.
A more valuable pound means importing goods - such as food and petrol - becomes less expensive. Lower import costs in turn can help bring inflation down as costs for businesses and households are lessened.
The rise in value, up from $1.22 this morning, follows the announcement of the lowest US inflation figures in nearly a year.
Official figures showed inflation rose 0.1% in November, lower than economists had expected and the smallest increase in nearly a year.
For the year as a whole, up to last month, inflation rose 7.1%, a reduction from June when the US inflation stood at a 40-year high of 9.1%.
Supply chain difficulties associated with COVID
-19 lockdowns, labour shortages and sky-high energy costs caused by the war in Ukraine had all pushed prices to rise across the economy.
The latest announcement of the slowed pace of price increases for may signal the worst of inflationary pressures are over.
However inflation is still multiples of the US central bank's target rate of 2%. The Federal Reserve, known as the Fed, has been steadily rising interest rates in an effort to slow the economy and inflation as a result.
On Thursday the regulator is expected to announced yet another increase, this time by 0.5 percentage points.
Higher interest rates make the cost of paying debt - such as mortgages or credit cards - more expensive.
If the 0.5 percentage point rate hike occurs, US interest rates will be at their highest since 2007.
While sterling held its gains against the dollar throughout the afternoon, settling at $1.23 this evening, the pound is still down against the dollar this year.
Since peaking against the dollar in mid-January this year, when £1 bought $1.37, it crashed to an all-time low in the wake of the mini-budget market upset in September.
Its value has steadily crept up since.
The pound has also increased against the euro and, since October, £1 has bought around €1.16.
UK inflation figures are also due to be announced on Wednesday this week and the Bank of England is expected to announce higher interest rates on Thursday.