THE EURO AND THE POUND ARE UNDERVALUED AGAINST THE DOLLAR ACCORDING TO THE LATEST BIG MAC INDEX
12.01.2017

THE EURO AND THE POUND ARE UNDERVALUED AGAINST THE DOLLAR ACCORDING TO THE LATEST BIG MAC INDEX

 

THE ECONOMIST: THE EURO AND THE POUND ARE UNDERVALUED AGAINST THE DOLLAR ACCORDING TO THE LATEST BIG MAC INDEX

LONDON, UNITED KINGDOM – January 12th 2017 - The euro and the pound are undervalued against the dollar by 24% and 18.7% respectively according to the latest Big Mac index, the patty-powered currency guide from The Economist.

A Big Mac currently costs $5.06 in America but €4.06 in the Eurozone and £3.73 in Britain, showcasing the euro’s drop to just $1.05, its lowest level since 2003, and the pound’s 31-year low of $1.21.

The Big Mac index is built on the idea of purchasing-power parity, the theory that in the long run currencies will converge until the same amount of money buys the same amount of goods and services in every country. Data for this analysis is based on market exchange rates on January 11, 2017.

Other highlights from this edition of the Big Mac Index:

  • In Big Mac terms, the Mexican peso is undervalued by a whacking 55.9% against the greenback. Mr Trump has yet to build his planned wall along the border. But fears of a trade war have caused the peso to lose a tenth of its value against the dollar since November.
  • Of big countries, only Russia offers a cheaper Big Mac - $2.15 in dollar terms - even though the rouble has strengthened over the past year.
  • A slightly more sophisticated version of the Big Mac index takes into account a country’s average income. According to the adjusted index the Chinese yuan, for example, is 44.1% undervalued against the dollar according to the baseline Big Mac index, but only 7.0% according to the adjusted one.

  • Because western Europeans have higher costs of living and lower incomes than Americans, the euro has traded at around a 25% premium against the dollar in income-adjusted burger terms since the euro’s inception. 

The full report including the latest data and interactive graphic for 42 countries and Hong Kong and the euro area zone is available at http://www.economist.com/content/big-mac-index

-ENDS-

For more information on The Big Mac Index or to arrange an interview with our editors, contact:

Lauren Hackett/The Economist (US), laurenhackett@economist.com/+1 212 554 0639

Holly Donahue/The Economist (UK), hollydonahue@economist.com/+44 (0) 20 7576 8379