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London - The pound faces further pressure against the euro from savage government spending cuts after being plagued by the prospect of more stimulus measures from the Bank of England (BoE), analysts said.
Chancellor of the Exchequer George Osborne will Wednesday deliver stinging cuts as the government seeks to slash the nation's record deficit, sparked by recession-ravaged taxation revenues and massive banking-sector bailouts.
Conservative Osborne is due to deliver the coalition government's comprehensive spending review (CSR) before parliament at 13:30 on Wednesday
"Although we've been expecting the UK cuts since June, the confirmation of where the axe will fall probably won't help sentiment toward sterling," said Kathleen Brooks, an analyst at online traders Forex.com.
"However, we think that the pound's reaction to the cuts will be more drawn out and long-term.
"While we may see a prolonged grind lower in sterling as austerity bites, bar a shocking announcement, we do not think the CSR will cause any sharp moves in sterling," Brooks told AFP.
Sterling hit a five-month low point against the euro last week, hammered by poor data and expectations that the BoE could launch more quantitative easing (QE) - effectively printing more money - to secure economic recovery.
Clues as to the likelihood of extra stimulus may come on Wednesday when the BoE publishes minutes from its last monetary policy meeting earlier this month.
Sterling last week sank to 88.39 pence against the European single currency, touching the lowest level since late April.
The pound has since pulled higher, but analysts now predict that a vicious round of spending cuts could spell fresh trouble as it could help tip the economy into a double-dip recession and force the bank to revive QE.
"Investors assume that the deeper the cuts and the more they eat into economic growth, the more QE the bank will decide to provide as a counter-measure," said Mark Deans, a dealer at London-based currency specialists MoneyCorp.
"That will mean a lower pound. Investors dislike QE because it dilutes the value of a currency."
Under QE, the central bank has already injected about £200bn into the economy to boost lending and crack the credit crunch.
The initiative, under which the BoE bought government bonds and high-quality private sector assets, helped haul the economy out of a record-length recession in late 2009.
Since the Conservative-Liberal Democrat coalition replaced Labour in government in May, Prime Minister David Cameron has set about slashing Britain's huge debt.
The coalition has pledged to eliminate the bulk of the so-called structural deficit - the level of borrowing that does not fall when the economy recovers - over the next five years.
Chancellor of the Exchequer George Osborne will Wednesday deliver stinging cuts as the government seeks to slash the nation's record deficit, sparked by recession-ravaged taxation revenues and massive banking-sector bailouts.
Conservative Osborne is due to deliver the coalition government's comprehensive spending review (CSR) before parliament at 13:30 on Wednesday
"Although we've been expecting the UK cuts since June, the confirmation of where the axe will fall probably won't help sentiment toward sterling," said Kathleen Brooks, an analyst at online traders Forex.com.
"However, we think that the pound's reaction to the cuts will be more drawn out and long-term.
"While we may see a prolonged grind lower in sterling as austerity bites, bar a shocking announcement, we do not think the CSR will cause any sharp moves in sterling," Brooks told AFP.
Sterling hit a five-month low point against the euro last week, hammered by poor data and expectations that the BoE could launch more quantitative easing (QE) - effectively printing more money - to secure economic recovery.
Clues as to the likelihood of extra stimulus may come on Wednesday when the BoE publishes minutes from its last monetary policy meeting earlier this month.
Sterling last week sank to 88.39 pence against the European single currency, touching the lowest level since late April.
The pound has since pulled higher, but analysts now predict that a vicious round of spending cuts could spell fresh trouble as it could help tip the economy into a double-dip recession and force the bank to revive QE.
"Investors assume that the deeper the cuts and the more they eat into economic growth, the more QE the bank will decide to provide as a counter-measure," said Mark Deans, a dealer at London-based currency specialists MoneyCorp.
"That will mean a lower pound. Investors dislike QE because it dilutes the value of a currency."
Under QE, the central bank has already injected about £200bn into the economy to boost lending and crack the credit crunch.
The initiative, under which the BoE bought government bonds and high-quality private sector assets, helped haul the economy out of a record-length recession in late 2009.
Since the Conservative-Liberal Democrat coalition replaced Labour in government in May, Prime Minister David Cameron has set about slashing Britain's huge debt.
The coalition has pledged to eliminate the bulk of the so-called structural deficit - the level of borrowing that does not fall when the economy recovers - over the next five years.
