Factors behind the dollar's surprising strength

The dollar has been up 19% against the euro and 24% against the British pound since July. What’s driving up the dollar? Businessweek provided three factors behind the dollar move.

Fear Factor

During tough economic times, investors often flee foreign currencies and other risky assets for safe havens like the U.S. dollar. The demand drives up the price relative to other currencies.

Foreign Economic Pressures

The euro, the pound, and emerging-market currencies may also have been inflated after a six-year runup…

… But earlier this year some investors started betting the bubbles would burst, driving down the price of the currencies and conversely benefiting the dollar.

Fund Redemption

U.S.-based hedge funds and mutual funds that own international stocks have played a part as well. Both groups are getting hit with a wave of redemptions. Investors yanked $39 billion out of international stock funds run by U.S. firms through the first nine months of the year…

… managers have had to dump foreign assets and buy U.S. dollars to pay back investors. Those purchases boost the greenback.