Mark Carney, the new governor of the Bank of England placed jobless numbers centre stage on Wednesday tying monetary policy to a 7% unemployment figure before it will be reviewed. With an economic recovery under way in the UK, GBP’s bias over the short- to medium-term is likely to be upwards. With the housing market and domestic consumption playing a key role in the UK’s economic recovery, and if sustained, the current rate of unemployment in the UK is likely to fall quite quickly from the current 7.8%. By Justin Pugsley, Markets Analyst MahiFX Follow MahiFX on twitter at: https://twitter.com/MahiFX This new stance means forex markets will pay even closer attention to UK jobs numbers. Clusters of resistance around GBP/USD 1.5600-1.5700 may soon be challenged and even 1.6000 could be in sight by the end of the year. Carney mentioned the prospect of keeping the Bank of England base rate at 0.5% out until 2016, but a domestically driven recovery could see that stance reviewed sooner than that. Indeed, the Bank has recently been revising UK GDP forecasts upwards. Nonetheless, as Carney noted the UK’s recovery is the weakest on record and there is still over-capacity in the economy to be absorbed. Bullish build up for GBP/USD GBP rally comes with wealth warnings However, Carney also laid out a number of caveats to this potentially rosy scenario for monetary policy. He rightly mentioned financial and price stability as important considerations. The problem is that the UK’s recovery is in large part being driven by the real estate market, supported by government policy, and domestic consumption. Households still hold high levels of debt and have seen their consuming power eroded by years of below inflation pay rises. This feeds through to the current account deficit at 3.7%, higher than it was a decade ago, and at a level, which has traditionally been bearish for GBP. Right now the forex markets aren’t focussing on that and probably won’t unless it starts to balloon, which would be bearish for GBP. Offsetting that is stronger US growth and possible tentative signs of a Eurozone recovery, which should absorb more UK exports. But that can’t be taken for granted. The previous focus on exports and business investment, which has not been particularly successful, is being quietly shunted into the background as the ruling Conservative / Liberal Democrat coalition government focuses on the general election to be held by May 7, 2015. For as long as the UK’s economic structural deficiencies don’t bleed through to the surface the outlook for GBP is bullish, but sustaining and even fuelling existing economic imbalances is dangerous and will eventually come back to haunt GBP in a big way later on if they’re not addressed by policy measures or a prolonged global economic recovery. But for now enjoy the party! Justin Pugsley Justin Pugsley MahiFX is headed by David Cooney, former global co-head of currency options and e-FX trading at Barclays Capital and responsible for the award winning e-commerce platform BARX and Susan Cooney, former head of e-FX Institutional Sales in Europe for Barclays Capital. Operating as a market maker, MahiFX provides traders direct access to institutional level execution speeds and spreads through its proprietary-built fully automated pricing and risk management technology, lowering the cost of retail forex trading. MahiFX global operations are headquartered in Christchurch, New Zealand with offices in London, UK with development and support teams in both locations for 24 hour service. The company is regulated by The Australian Securities and Investments Commission (ASIC), Australiaâ€™s corporate, markets and financial services regulator. Article by Justin Pugsley, Markets AnalystÂ MahiFXÂ Follow MahiFX onÂ twitterÂ and onÂ facebookÂ Disclaimer: This material is considered a public relations communication for general information purposes and does not contain, and should not be construed as containing, investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. MahiFX makes no representation and assumes no liability as to the accuracy or completeness of the information provided. The use of MahiFXâ€™s services must be based on your own research and advice, and no reliance should be placed on any information provided or comment made by any director, officer or employee of MahiFX. Any opinions expressed may be personal to the author, and may not reflect the opinions of MahiFX, and are subject to change without notice View All Post By Justin Pugsley Opinions share Read Next Forex Daily Outlook August 8 2013 Anat Dror 9 years Mark Carney, the new governor of the Bank of England placed jobless numbers centre stage on Wednesday tying monetary policy to a 7% unemployment figure before it will be reviewed. With an economic recovery under way in the UK, GBP's bias over the short- to medium-term is likely to be upwards. With the housing market and domestic consumption playing a key role in the UK's economic recovery, and if sustained, the current rate of unemployment in the UK is likely to fall quite quickly from the current 7.8%. 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