legion, I'm not a FX trader so caveat emptor etc.
AFAIK, a currency moves based on demand to buy and sell things denominated in that currency. "Things" are everything that goes into balance of trade (commodities, manufactured goods and services) and securities (bonds and stocks). Currencies are also affected by speculative trading.
The US has a trade deficit, meaning there is less demand to buy things made in the US (denominated in USD) than to buy things made outside the US (almost all denominated in non-USD currencies, except for oil). That tends to drive the USD down.
As for securities, the US stock market has done well in recent years but international stock markets have done better, so more demand for non-US stocks than for US stocks. Buying of US bonds appears to have slowed significantly, both for Treasuries, corporate bonds, and mortgage-related bonds. Foreign central banks appear to be slowly diversifying away from US treasuries. Has been much less interest in CDOs, US commercial paper, and debt to fund private equity buyouts. True, higher US short-term interest rates would tend to make some US investments more attractive, but isn't that much global money in US bank CODs and the like. Overall, also a headwind for the USD.
I don't have info on speculative trading but generally traders have been betting against the USD. Another headwind.
Again, FX is complex and I think very hard to predict short-term. None of the equations one learns about exchange rates in macroeconomics and finance classes seem to actually work well,
AFAIK. Being a currency trader must be damn hard. But on a longer-term basis, there have been several headwinds for the USD that explain why it has been going down for years now.
Finally, it is pretty obvious that the US government is not actually trying to support the USD. Govt officials haven't even been repeating the "strong dollar" slogan much lately.
Imagine if Fed were
raising rates now. US economy would be breaking down even harder and US stock market would be plunging. Think about impact on global demand to buy US denominated things - seems to me headwinds to USD would be even worse.
I generally think Bernanke is doing what he has to, to try and avert a financial and economic crisis. He should have acted earlier to rein in stupid mortgage lending, as Greenspan should also have done, but his actions right now seem correct to me. I hope he succeeds. People in PPOT like to take morally righteous positions about what "should" happen to borrowers and housing and so on, but I think they'd sing a different tune if it actually happened. They'd be cashing unemployment checks and distress-selling their Porsches.