This feature argues that a combination of factors caused the surprising US dollar appreciation in the second half of 2008. Both the global flight to safety into US Treasury bills and the reversal of carry trades amidst the crisis were sources of dollar strength. In addition, the surge in dollar funding costs in the interbank and FX swap markets provided price incentives for corporates to draw on non-dollar funding to pay down existing dollar debt. Finally, dollar asset writedowns left European banks and institutional investors outside the United States with overhedged dollar books. The squaring of their positions, which required dollar purchases, also boosted the currency.