Chew on this, would ya?
The U.S. dollar is getting stronger, according to the closely watched — or at least, heavily seasoned index of global currencies known as the Big Mac Index.
A series of world currencies have weakened against the dollar over the past year, according to The Economist, which puts this really-only-half-joking measure together.
The idea is that — all things being equal — the price paid for the same product around the world will tend toward equaling out. The theory is called purchasing-power parity and the index uses the concept — and what it calls the notion of burgernomics — to gauge the relative strengths of different currencies.
The Economist prices one product — the Big Mac — around the world and measures the change in its local cost over time.
Oh, and in India, where there are wide religious objections to eating beef, they use the Maharaja Mac, a chicken sandwich.
(They also weight the currencies by gross domestic product, but no need to go too deep into that).
The conclusion today, according to The Economist: The average valuation has moved from “roughly neutral” five years ago to about 15 percent undervalued against the dollar now.
The most overvalued currency in the world, they say, is in Norway: a Big Mac costs 48 kroner — the equivalent of $7.77 — compared to $4.80 in the United States, according to The Economist.
And the weakest currency in the world is Ukraine, where the Big Mac costs $1.62.
Now, a stronger dollar is terrific for some things. If you are buying say, a Maserati made in Italy or cheese made in France or grape leaves from Lebanon, it effectively lowers the price for you
But if you happen to be in the export business — whether you are selling peanuts, pastries or legal services — you tend to hate a stronger buck, because it makes what you are selling more expensive overseas.
The dollar has always been a haven in tough times for investors, bulking up when other nations were embroiled in trouble.
So The Economist release explaining today’s index blamed the dollar’s strength to the various international crises centered in or around Europe.
“It is not on the whole surprising that currencies globally are looking a bit less supersized,” The Economist release said.