The Big Mac index, published on Wednesday, is rooted in Purchasing Power Parity Theories: The exchange rates reflect the value of the commodities the currency can buy. If the currency X can buy a commodity at a lower price than the Y, then the currency X can be reasonably underestimated and the Y currency can be overestimated. even stronger, the indicator shows.
The Russian ruble is most under-valued against the dollar, 65%, according to Economist. Big Mac in Russia costs 130 rubles, about $ 2, compared to $ 5.74 in the US. On the other hand, the Swiss franc is the only currency that is overvalued against the dollar. Big Mac costs 6.5 francs in Zurich, about 6.6 dollars, which makes the franc 14 percent stronger than it should be, according to the theory of purchasing power parity.
Measured by the US dollar index, the dollar has risen by 0.9% a year, according to Refinitiv. In 2018 it grew by 4%. The increase from last year is mainly due to the Federal Reserve's interest rate hike. Higher interest rates make a country's assets, including its currency, more attractive to investors.
This year, the Fed, which is expected to cut interest rates, has to weaken the dollar.
All-spectrum politicians have noted that the strength of the US dollar against its competitors is detrimental to the US's competitiveness on the global market.