This publication is part of a set of 18 documents which have been prepared by H.M. Treasury to inform the assessment of the Government's five economic tests for Economic and Monetary Union (EMU) entry into the euro area. This study examines the determinants of the equilibrium exchange rate (EER) and the implications for sterling in the medium term. It also provides some new estimates based on a model specifically designed to calculate an EER for the euro sterling rate, as well as considering how sensitive the EER is to alternative assumptions.