Very good question. I've heard many different explanations. IMO it's related to the massive US equity sell-off we've seen. When a leveraged stock account margin calls, or people cash out from their US equity mutual fund, the payout is in USD's, and the increased demand will strengthen the USD. Obviously the equity sell-off isn't restricted to the US, but in absolute $ terms the selloff will be larger in the US stock market compared to the UK or Australian stock markets for example, just because the US stock market is bigger, hence the GBP/USD and AUD/USD pair have fallen so much. The currency moves right now aren't related to interest rate differential, but more to the massive fluctuating currency demands from the large stock turnover.
It really is an interesting time. Technical forex trading has become a little difficult because the magnitude of the moves are about 2-3 times what they usually are. It is however a great time for fundamental equity investors. There are some fantastic bargains out there if you do your homework.
What will happen once this volatility in the equity market subsides? Probably a significant reversal of this USD strength, and eventually the currency pairs becoming a barometer of the relative strength country's economy like they did in the past.
