The Big Mac Index was introduced by The Economist in September 1986 as a humorous illustration and has been published by that paper annually since then.
See Wikipedia on the details on Big Mac Index.
According to Wikipedia, the Big Mac was chosen because it is available to a common specification in many countries around the world, with local McDonald's franchisees having significant responsibility for negotiating input prices.
Basically this index measures the cost of big Mac across different countries. Trader can base on this index to measure which currency is undervalued and which currency is overvalued.
According to Big Mac Index for this year, the most undervalued currency is Chinese Yuan, it is undervalued by 49%. The 2nd most undervalued currency is Japanese Yen, it is undervalued by 28%.
The overvalued currencies are the European currencies, EUR is 55% overvalued, Swiss Franc is 65% overvalued.
So base on the Big Mac Index, the ideal FX strategy is to short EUR/JPY.
See Wikipedia on the details on Big Mac Index.
According to Wikipedia, the Big Mac was chosen because it is available to a common specification in many countries around the world, with local McDonald's franchisees having significant responsibility for negotiating input prices.
Basically this index measures the cost of big Mac across different countries. Trader can base on this index to measure which currency is undervalued and which currency is overvalued.
According to Big Mac Index for this year, the most undervalued currency is Chinese Yuan, it is undervalued by 49%. The 2nd most undervalued currency is Japanese Yen, it is undervalued by 28%.
The overvalued currencies are the European currencies, EUR is 55% overvalued, Swiss Franc is 65% overvalued.
So base on the Big Mac Index, the ideal FX strategy is to short EUR/JPY.