The US dollar is taking a beating today despite the poor risk mood in the equity market. There's no easy answer for what's happening; the Fed hiked 75 bps yesterday and the market is pricing a 78% chance of another 75 bps hike next month. Some theories:

1) Let's keep it simple

The front end of the Treasury curve is the #1 game in town throughout markets. Yields rose to 3.39% earlier but have reversed and are down 10 bps on the day to 3.17%. Moreover, after the jump after CPI, the front end has cooled off.

US 2 year yields daily

2) Spread compression

It's not just the move in US yields today, German bund yields have gone in the other direction. An ECB leak suggested they're considering selling holdings of lower-yielding European bonds to buy higher yielding ones, in a sort of Operation Twist. The market has taken it to heart and German 10s are up 28 bps to 1.72% -- that's nearly 40 bps of compression and the euro is up 150 pips, in turn. That pair also benefited from a technical bounce due to support at the May lows.

EURUSD daily chart

3) The SNB shock

No one saw a 50 basis point Swiss National Bank rate hike coming today. They delivered a big shock and they coupled it with the removal of a reference in the statement to a strong franc. The US and Switzerland compete for safe haven flows and the near-removal of negative rates in Switzerland would undercut one source of USD demand.

4) Today's Bank of Japan decision

Perhaps more than the SNB mechanics itself, the surprise is a reminder of today's big event risk -- the BOJ decision. The central bank is entirely offside with what's happening globally. Inflation is picking up and they're stubbornly holding JGB yields at +0.25%. Huge bets are ramping up against them and that's turned today's decision into a major event. If they change gears, or even offer a hint, the enormous one-way trade in USD/JPY could unwind. In anticipation (or fear) of that, we're seeing some major USD/JPY selling today but if you look at the daily chart, it's just the tip of the potential iceberg.

USDJPY daily chart

5) The BOE decision

On the face of it, there was no surprise from the BOE as they hiked 25 basis points. However there's been some solid blowback against that move and there were three dissents. The market could be sensing bigger BOE hikes to come. Cable is up more than 400 pips from this week's lows and it looks like the bets on a definitive break of 1.20 are getting squeezed.

GBPUSD 15 min chart June 16

I think this is a case of where the sum of the parts has added up to some significant flows in a market that's increasingly uncertain. Tack on more selling of US tech (which continues to underperform global stocks this year) and there's plenty of reason to be easing up on US dollars after a monster run to start the year.

What next? Watch the Bank of Japan carefully today and keep an eye on yields. If the BOJ maintains the status quo and yields continue to drift down, the dollar slump (ex JPY) should extend tomorrow.