Recently, the US dollar has not been particularly popular among traders, who have shifted their focus to more attractive risk assets. However, this situation could end as quickly as it began. Obviously, following the latest US inflation data, the Federal Reserve's course will now change as rapidly as prices do.

Yesterday, Cleveland Federal Reserve Bank President Loretta Mester stated that monetary policy is in good shape, adding that the central bank should not be in a hurry to cut interest rates. She also noted that she still expects inflation to ease further. Evidently, only new data will provide confidence that inflation is moving back to the Fed's 2% target, as a strong economy and robust labor market are giving the Fed room to be patient with policy. "I still am expecting inflation to come down but I do think that we need to be watching and gathering more information before we take an action," Mester said on Wednesday at an event in Chagrin Falls, Ohio.

Earlier this month, Mester advocated for three interest rate cuts this year. Notably, the Fed official has a vote on monetary policy but will leave her post in June this year. Until then, the central bank is unlikely to make any interest rate moves. Only a sharp rise in inflation in April could prompt the Fed to increase borrowing costs, but no one will be rushing to lower them.

At a separate event in Washington, another Fed official, Michelle Bowman, stated that progress on inflation may have stalled and questioned the the degree to which monetary policy is restraining the economy. "There is a lot of financial market activity and a lot of continued growth that we wouldn't have expected if the policy was sufficiently tight," Bowman said on Wednesday. According to him, these restrictive measures will continue, and time will tell whether they are restrictive enough.

Recently, more Fed representatives have stated that they are no longer in a hurry to lower rates, which they have maintained in the range of 5.25% to 5.5% since last July. Higher-than-expected inflation data for the first three months of this year have heightened fears that returning to the Fed's 2% target may take longer than previously anticipated.

This is a defining moment explaining why the US dollar has recently shown such a strong rally against the euro and British pound.

From a technical perspective, the EUR/USD pair continues to trim early losses. Buyers now need to take control of the 1.0685 level. In this case, the way to 1.0730 and 1.0760 will open. However, reaching the latter will be quite challenging without support from major players. The most distant target is the peak at 1.0780. In case of a decline, major buyers are expected to take the lead only at around 1.0650. If the price falls below this level, it would be wise to wait for the euro to hit a new low at 1.0605, or open long positions from 1.0560.

As for the GBP/USD pair, bulls need to regain control of the nearest resistance level at 1.2490. This will allow aiming for 1.2540, above which it will be quite difficult to break through. The most distant target lies in the area of 1.2575. Its breakout will pave the way for a more pronounced surge in the British pound upwards to 1.2620. In a bear case scenario, sellers will try to take control of the 1.2440 mark. If they succeed, breaking through the range will deliver a serious blow to bulls' positions and push sterling down to the 1.2410 low and then probably the level of 1.2370.