The divergence index

The headline divergence index is a single number — the population standard deviation of the nine policy rates we track — that captures how much the world’s major central banks disagree on the right level of rates. When the index is low, central banks are bunched together: usually because they all face the same global cycle. When the index is high, banks face very different domestic conditions and are setting policy on different trajectories.

Two flavors are computed:

• Current — using today’s policy rates
• 12-month projected — using each bank’s implied path

When the projected number is meaningfully higher than the current number, divergence is set to widen. When it is lower, the cycle is converging.

Peak-divergence pairs

The page below ranks key cross-bank pairs by the amplitude of their projected spread over the next twelve months. Pairs with large amplitudes are where the divergence narrative is most actionable — both for FX and for cross-currency basis trades.

For each headline pair we project a monthly path of the spread using each bank’s linearized rate trajectory and identify:

• Peak month: the month in the next year where the spread reaches its maximum
• Trough month: where it reaches its minimum
• Amplitude: peak minus trough

Why divergence matters

• FX: rate differentials are the single most reliable medium-term driver of major currency pairs. Widening divergence typically pushes the currency of the higher-yielding bank stronger, all else equal.
• Bond markets: divergence influences cross-currency basis swaps and the term structure of FX-hedged returns.
• Capital flows: when divergence is high, capital reallocates across regions, changing equity, credit, and real-estate flows simultaneously.

Methodology

The divergence index uses unweighted population standard deviation across all nine banks. We deliberately do not weight by GDP or market cap — the goal is to measure pure policy dispersion, not economic-weight-adjusted dispersion. The 5-year history chart provides historical context. Pair-level monthly paths use a linear interpolation from the current rate to the 12-month projected rate. Historical pair-level reconstruction is currently approximate; a full historical series will be added when database history coverage extends across all nine banks.

Index — current

1.75

Index — 12m forward

1.51

Index — real rates

1.27

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