What is a Dollar-Bear
A dollar-bear is a forex trader or speculator who is using a pessimistic strategy when trading the U.S. dollar (USD) against other currencies. This strategy expects the U.S. dollar (USD) to decline against major currencies over time and will consider this factor when positioning investment portfolios.
Typically, a dollar bear will take action to protect themselves against what they see as an inevitable decline in the U.S. dollar through moves such as liquidating their assets.
BREAKING DOWN Dollar-Bear
A dollar-bear trader will take a financial strategy which includes a weak dollar. Essentially, a weak dollar means that a U.S. dollar can exchange for fewer amounts of foreign currency. Some factors, not just economic fundamentals, can lead to a period of U.S. dollar weakness. Bears might not know exactly which money the dollar will underperform against, but they are firm in their view that it will not meet expectations.
A bear market, like a weak dollar, will happen over a sustained period of months, or years, and not in the short-term, such as days or weeks. A bear market is the opposite of a bull market, in which asset prices are up. Investors who believe in the value of the dollar, then, are often called bull investors. A bull investor will often take the opposite actions of a bear investor and invest in securities as a long-term financial strategy.
Trading as a Dollar-Bear
The Dollar-bear will take a short position on the USD in a currency pair. To profit, the exchange rate of the dollar must continue to fall. These USD bears will consider the U.S. economy, debt to spending ratio, market surplus, global commodity prices, and the geopolitical climate as a whole. As reported in this June 2018 article by CNBC, trade or tariff wars will also play a large part in how a bear or a bull trader will look at the value of the USD. Their foreign exchange trades will focus on the currency pair where they feel the dollar will remain weak.
Dollar-bear traders may go long the EUR/USD pair because as the EUR increases, the USD loses value. Since the U.S. dollar has a strong negative correlation with precious metals and commodities, a dollar-bear may overweight their portfolio in assets such as gold and base metals to hedge against a continued greenback decline.
Although bull and bear investors are seen as opposites with bulls seen as optimistic and bear as pessimistic, they are merely using investing strategies and can change their position at any time, based on how they perceive the market. As these traders and speculators gauge the relative strength of the USD, they may watch the dollar index (USDX). This index allows traders to monitor the value of the USD compared to a basket of select currencies.
Fiscal Policy, Interest Rates, and Dollar-Bears
During a period of fiscal tightening, when the U.S. Federal Reserve is raising interest rates the U.S. dollar is likely to strengthen and this is good for dollar-bulls. Conversely, a weak dollar occurs during a period of fiscal easing when the Fed is lowering interest rates such as what happened in response to the Great Recession. Using quantitative easing, the Fed purchased large sums of Treasuries and mortgage-mortgage-backed securities, the bond market rallied, which pushed interest rates in the U.S. to record lows. As interest rates fell, the U.S. dollar weakened substantially, thereby helping the dollar-bears.
Over a period of two years (mid-2009 to mid-2011), the U.S. dollar index (USDX) fell 17-percent. However, four years later as the Fed embarked on lifting interest for the first time in eight years, the plight of the dollar turned, and it strengthened to make a decade-long high. In December 2016, when the Fed shifted interest rates to 0.25 percent, the USDX traded at 100 for the first time since 2003.
There have been many dollar bears throughout history. For instance, in 2005, Forbes named Warren Buffet as one of the most well-known dollar bears. Between 2002 and 2005, the EUR/USD dropped by 33%, and at that time, Buffet was notoriously negative about the dollar.
As with most matters in life, there are views on both sides of the bull vs. bear market. As Reported by Barron's in April 2018, Byron Wien, Blackstone vice- chairman and bull who predicts 3% growth, low inflation, and that interest rates will rise only moderately. On the bear side, David Tice, who ran the Prudent Bear fund until 2008 believes the stock market will fall by 20 to 25 percent by the end of 2018, due to rising interest rates, a growing budget deficit, and an overabundance of bonds in the marketplace.