Big Mac Currency Index

Currencies out of whack, says Big Mac

A McDonald's Big Mac burger is over-valued by 50 per cent in the eurozone when compared to its price in US dollars and under-valued by 49 per cent in China, the Economist magazine says.

The magazine wrote that according to its Big Mac Index, which compares exchange rates that should leave a Big Mac burger costing the same in US dollars everywhere, "many currencies look more out of whack than in July 2007, when we last compared burger prices".

A Big Mac costs on average US Dollars 3.57 in the US.

But in the eurozone a consumer with the US currency in hand would have to change $US5.34 to buy a burger in euros.

For the two currencies to have the same purchasing power at McDonald's, the euro should be worth $US1.06, rather than $US1.57 at present, suggesting that the single currency is over-valued by 50 per cent against the US dollar.

But the Economist found that "the dollar buys a lot of burger'' in Asia, concluding that the Chinese yuan for example is undervalued by 49 per cent against the US dollar.

Elsewhere, the survey found that the Swiss franc is over-valued by 78 per cent against the US dollar, the British pound 28 per cent and the Norwegian krone 121 per cent.

Is the Sell-off in the British Pound Over?

The British pound has finally stabilized after gradually trending lower since the beginning of the month. Coincidently, the currency’s pair’s intraday low was exactly the same price as the low reached on February 20th, leading some technical traders to call the latest recovery a double bottom. Fundamentally, there was no UK data released yesterday and none expected today, which means that there is no major news to drive the British pound lower. The US data on the other hand could drive the dollar lower which coincides with the potential for a Pound US Dollar rally. However even though the currency pair could very well extend its gains over the next 24 hours, the British pound remains vulnerable to further losses especially if the housing market deteriorates further.