One great thing about the financial markets is that they force us to evaluate trends objectively. The declining dollar is a case in point. The dollar had been falling against major currencies for months and then something changed. Since then, the dollar has gained back some of that lost ground as this chart demonstrates:
Source: Bespoke Investment Group
The black line in the chart shows the 200-day moving average. The 200 DMA smooths out the daily ups and downs for an investment by showing a trendline made up of the closing price for the past 200 trading days (another widely-followed moving average is the the 50 DMA shown in blue above). In this case, the dollar has moved close to its 200 DMA and that is considered to be a very positive technical indicator.
Why is this happening? On the one hand, we have the U.S. government trying to bail out the big banks and reinflate the economy. It is willing to let the dollar depreciate as part of that process (see Quantitative easing, big banks & inflation). In other words, I believe the US Treasury is far more concerned about the solvency of big banks than about the strength of the dollar.
On the other hand, when trouble arises, the dollar strengthens because it is viewed as a safe haven. The dollar probably got a bit too strong early this summer, when there were so many concerns about the viability of Greece and other struggling European countries. For a few months, those countries fell out of the news cycle and during that time period, the dollar resumed its downward movement.
But then, the Irish government and banking crisis popped up and the dollar began gaining ground (see Ireland, banks & reality). This crisis arose because the Irish government decided to bail out its banks and was willing to put its own solvency and independence on the line rather than let big Irish banks fail.
When investors get worried about the return of their capital, the dollar strengthens. When they are primarily worried about getting a better return on their capital, the dollar declines.