The U.S. dollar’s downward slide is accelerating as low interest rates, inflation concerns and the massive federal budget deficit undermine the currency.

With no relief in sight for the dollar on any of those fronts, the downward pressure on the dollar is widely expected to continue.

The dollar fell nearly 1% against a broad basket of currencies this week, following a drop of similar size last week. The ICE U.S. Dollar Index closed at its lowest level since August 2008, before the financial crisis intensified.

“The dollar just hasn’t had anything positive going for it,” said Alessio de Longis, who oversees the Oppenheimer Currency Opportunities Fund.

The main driver for the dollar’s decline is low interest rates in the U.S. compared with higher and rising rates abroad. Lower rates mean a lower return on cash—and the pressure from that factor could intensify next week when the Federal Reserve’s rate-setting committee is expected to signal that U.S. short-term rates will likely remain near zero for many months to come. On Wednesday, Fed Chairman Ben Bernanke is scheduled to give the central bank’s first-ever press conference following a policy-setting meeting.

But it is worry about the U.S. budget deficit that is intensifying the selloff. On Monday, investors were spooked by a warning from Standard & Poor’s that it might take away the U.S. government’s coveted AAA rating status amid concerns the Obama administration and Republicans in Congress might not be able to agree to significant reductions in the deficit.

In addition, Chinese government officials have stepped up rhetoric hinting they might diversify their $3 trillion of currency reserves away from U.S. dollars. Such a shift would chip away at what has been a substantial source of dollar-buying in recent years.

China has in recent weeks been allowing its currency, the yuan, to appreciate steadily. This poses two challenges to the dollar. First, the more Beijing lets its currency rise, the less it needs to buy dollars to offset yuan strength. Second, other Asian countries that compete with China for exports may also allow their currencies to strengthen against the dollar.

Washington has been pushing Beijing to let the yuan rise against the dollar and other currencies, in order, among other things, to help reduce the U.S. trade deficit. But a continued decline in the value of the dollar is a double-edged sword for the U.S. economy.

A weaker dollar is a boon for U.S. exporters by making their goods more competitively priced. This has been a tailwind for technology companies and manufacturers, a bright spot in the otherwise slow economic recovery.

Since the recovery started in the third quarter of 2009, exports have contributed about 1.4 percentage points to the nation’s 3.0% annualized growth rate, marking trade’s biggest share of growth over an 18-month stretch on record.

But a weaker dollar hits strained consumers by raising the cost of imported oil, as exporters seek higher dollar-denominated crude prices to offset the dollar’s waning value.

To a certain extent, some U.S. officials see the dollar’s decline as the inevitable result of disparate growth rates between the U.S. and the fast-growing developing world. Mr. Bernanke and Treasury Secretary Timothy Geithner have given no indication they want to alter their stance.

Rebecca Patterson, chief markets strategist at JPMorgan Asset Management, doesn’t foresee U.S. authorities intervening to stop the dollar’s fall, unless there’s evidence the weak dollar is taking a toll on the stock market.

“The U.S. historically has only gotten active in the currency market when the dollar moves were spilling over into other assets,” she says. “American voters care a lot more about stocks and their 401(k)s. If the dollar starts to undermine that, that’s when the Treasury Department pays more attention.”

One source of comfort for the government is that the dollar’s decline has been orderly. Against a broad basket of currencies, the dollar is down 9.1% from a year ago. In 2003 and 2004—a period of very low interest rates engineered by Mr. Bernanke’s predecessor, Alan Greenspan—it registered annual declines of closer to 10%.

While the weaker currency is helping to drive the recovery, it has also contributed to palpable public worries about inflation and the diminished standing of the U.S. on a global stage. The weak currency helps to drive up the price of oil in dollar terms, and therefore gasoline at the pump, exacerbating another political problem for Mr. Obama at the moment. An April Gallup poll found that 42% of Americans surveyed had little to no faith that the Fed would do the right thing for the economy, and 43% had little to no faith in Mr. Geithner.

This past the week, the dollar, as measured by the index that tracks it against a basket of currencies, hit its lowest point since the 2008 financial crisis. Before the crisis began, the dollar had lost more than 40% of its value against the basket during a steady six-year decline, driven by many of the same factors bedeviling the currency today. The dollar is 5% away from its all-time low, hit in March 2008, as tracked by the dollar index, which dates back to 1971.

The dollar’s weakness is even more striking in the face of the struggles facing the European Union and Japan, the U.S. currency’s biggest rivals. Expectations are growing that Greece, which required a bailout from other euro-zone countries in 2010, will in coming months be forced to restructure its debt obligations. That could inflict losses on banks across Europe holding those bonds—an event that might be seen as a negative for the euro.

Japan is struggling to recover from the earthquake and subsequent nuclear disaster. The economic toll from the tragedy now looks as if it may play out for months. The biggest beneficiaries have been gold, which crossed $1,500 an ounce for the first time this week, and other commodities.

—Jon Hilsenrath and Jonathan Cheng contributed to this article.Write to Tom Lauricella at tom.lauricella@wsj.com