Over the past four months, as frightened investors all around the world fled from risk, the dollar recouped over two years worth of losses against a broad group of international currencies.

Since the beginning of August, the U.S. dollar has strengthened about 23% against the Euro, 34% against the British pound, and even greater returns against some currencies in the world’s developing countries.

As a reminder, the U.S. dollar has been on a decline since 2002. The recent upswing is encouraging but still has way to go to recover all its losses. But the fact remains, it still represents a significant turning point for a currency whose years of weakness had turned it into a source of amusement and embarrassment for Americans.

The weak dollar has had a significant impact on Americans as the cost of imported good rose and traveling overseas was made almost impossible except for the ultra rich..

But a strange thing happened as the world economy sufered. The increasingly wide scope of the financial crisis has also assisted the dollar’s rebound. It quickly became apparent that the U.S. is far from the only country with economic woes and struggling banks.

But for currency investors, the resurgence of the dollar may be a huge challenge. Some experts feel the dollar’s rebound may be short-lived, due to the  enormous challenges facing the U.S. economy. But then there are others who say it’s likely to hold its gains far into 2009 as economies around the world continue to fight global slowdown.

But for the moment, it’s a good sign for U.S. consumers. The stronger dollar is a big hit for Americans traveling overseas. They have tired of seeing their hard earned dollars buy less and less on each trip.

But for some companies, it is far less desirable. A stronger dollar does mean that the goods and services of American exporters are more expensive for foreign buyers. The result is it reduces their competitiveness. Another factor that is a negative for American multinational companies, their overseas earnings will now be worth much less after being exchanged back into U.S. dollars, hurting both their sales and profits.

There are storm clouds on the horizon. Once the U.S. economy begins to recover, the huge injections of cash by the Federal Reserve could cause rampant inflation. This is bad news for the dollar because it will erode a currency’s worth.

Some experts say the Fed will cut back liquidity before that happens, by raising interest rates or through other measures. For now, the Fed is focusing on the bigger problem – trying to prevent deflation, a vicious cycle of contracting credit and falling prices.

In the back of their minds, investors also worry about another scenario, where foreign investors lose confidence and scale back or stop buying U.S. assets. That would send the dollar plunging and interest rates soaring.

For investors, the dollar’s latest surge and murky future present a number of choices. For example, if you believe that, in the long run, the dollar is likely to weaken, one strategy to consider is owning stocks or bonds denominated in other currencies. Then if the dollar does lose ground, the returns will be worth more when converted back into dollars.

It’s all a gamble, so bring out your crystal ball and see what it tells you.