About 30 years ago, The Economist magazine found the perfect solution to evaluate the various currencies relative to the US currency - the decision index Big Mac. It is based on the theory of purchasing power parity, namely, comparative characteristics specific basket of goods and its price in different countries.
But here in the basket is only one product - a Big Mac. This is what the cost of goods makes it possible to carry out a comparative assessment of the value of different currencies.
According to the latest data, the Big Mac in America is $ 5.3, while in Japan - $ 3.36 (380 yen). From this we can conclude that the yen is undervalued against the dollar by 37%.
But this situation can also be seen in relation to other currencies. Recently, the US currency strengthened significantly - only three currencies are overvalued against the US dollar, it is the Swiss franc, the Norwegian krone and the Swedish krona, the remaining 31 - undervalued.
It should be noted that after the coming to power of Donald Trump, the situation has changed a bit and part of a basket of currencies managed to recover a bit of their value. For example, the Egyptian pound, which has always been considered the most undervalued currency. In January, the Egyptian pound was undervalued against the dollar by 71%, and today - 67%. The cost of Big Mac has risen from $ 1.53 (27.5 pounds) to $ 1.75 (31.4 pounds).
A similar situation can be traced in the euro. Over half currency strengthened and underestimation decreased from 20% to 16%.
The Mexican peso was also able to strengthen its position with the January level of 22 pesos to the dollar has risen to 18. Now the undervaluation of the currency is 48%, whereas in January - 56%.
Thus, if the index does demonstrate the real data, and it shows them, it can be argued that the US dollar will continue to decline.
Based on materials WELTRADE
