Dollar Gets Expensive

The most recent Big Mac Index from The Economist shows that, using purchasing power parity to compare the price of Big Macs in different countries, the U.S. dollar is very strong. In only one country, Switzerland, is the currency overvalued compared to the dollar. In every other country examined, the currency is undervalued when compared to the dollar. When GDP is taken into account, five currencies are overvalued compared to the dollar. Looking at Britain, the pound reached a high of about 25 percent overvalued in 2008 to its current 16 percent undervaluation. Remember, a strong dollar means that U.S. consumers can buy foreign goods more cheaply, resulting in more imports. At the same time, U.S. exports become more expensive to foreign buyers, thereby reducing exports.