Fredrik Erixon, Director of the ECIPE, on the Euro's future performance and the main drivers

Nominal exchange rates are always going to move. But the position of the Euro against the other global currencies mostly depends on what happens in other countries and central banks – at least as long as the ECB remains very conservative about supporting money growth. Under a scenario where the Bank of Japan continues with its policy of monetary expansion and the Fed maintaining its QE programme for the rest of the year, I believe it is likely that the Euro will remain at largely the current levels. 

However, many of these assumptions can change. The ECB can move to unorthodox policies, the Fed can start reduce it's QE, BoJ can get cold feet about its money programme, and we may have a bigger slowdown than expected in China. All of these factors will have an impact on the euro exchange rate.

I would mainly look at what the central banks are doing. We are still a good distance form the point when the performance of the real economy will determine exchange rates, it is still central bank operations that dominate the money markets. At some point we are going to return to some sort of normal situation, where real economic fundamentals would have a greater effect on determining the price of currencies; however, we are not there yet.

On the medium term we are much looking towards more or less stable scenario under the assumptions that there would not be any changes in central bank policies. In case changes are implemented, if the Bank of Japan continues to be uncertain about the durability of its actions and cannot make that strong commitment to a policy and if the Fed starts to slow down its monetary expansion faster than Bernanke said in its congressional testimony, then we are certainly looking towards a scenario, where the FX rates are going to change pretty much as well. Thus, I would refrain from making calculations of exact levels three months or even a year ahead, as some of these assumptions might change and that will make 100% effect on currencies rates as well.