Central Bank Divergence Index

Central Bank Divergence Index (CBDiv) by CWRP blends foreign exchange (FX) market behavior and short-term interest rate (STIR) spreads to detect monetary policy divergence or convergence among major economies.

It calculates a composite Z-score index that tracks divergence between the US and other major economies using FX pairs USDJPY, EURUSD, GBPUSD, AUDUSD (With AUD acting as a proxy to the RMB) and short-term bond ETFs (SHY = U.S. 1–3Y Treasury, EWJ = Japan, IEUR = Europe).

SHY/EWJ and SHY/IEUR: If SHY outperforms, it means US short-term rates are rising relative to Japan/Europe.

How to Read:

Highlighting

Yellow = Diverging central bank policy (US > others) ; Hawkish
Blue = Converging policy (US < others) ; Dovish/Lagging
Gray = Neutral

Table

FX Divergence:
Positive (> +1) -> USD is strengthening unusually fast -> Fed is likely tighter than others
Negative (< -1) -> USD is weakening -> Other central banks might be tightening relative to the Fed

Rate Spread Divergence (Which acts as a proxy for interest rate divergence):
Positive -> U.S. rates are rising faster than Japan/Europe
Negative -> Foreign short-term rates outperforming U.S.

Composite:
Positive (> +1) -> Strong U.S. policy divergence (hawkish Fed)
Negative (< -1) -> Converging or dovish Fed
Neutral (Between -1 and +1) -> Neutral policy stance

Thank you for using the Central Bank Divergence Index by CWRP!
I'm open to all critiques and discussion around macroeconomics and hope you find use in this model!