Strategist: How Trump and the UK could derail markets

Jefferies: Investors should key off dollar strength

The U.S. dollar will drive markets in the coming months, and Donald Trump and Britain will help to determine how the greenback trades, one market strategist contended Tuesday.

Trump, the bombastic businessman, has emerged as the likely Republican presidential nominee, partly fueled by strong rhetoric against trade deals and China. Britain, meanwhile, will vote on a possible exit from the European Union, a decision that some argue could shake its economic growth and broader expansion in Europe.

David Zervos, chief market strategist at Jefferies, believes both Trump's rise and a possible "Brexit" could drag on investors' returns.

"The two big events for me are Brexit and the election. They really make it a tough trading environment," he told CNBC from the sidelines of the Milken Institute Global Conference in California.

Daniel Leal-Olivas | AFP | Getty Images

Zervos said investors "should key off dollar strength." After a rally near the end of last year, the greenback has lost nearly 6 percent this year against a basket of currencies.

That drop, he argued, "saved most people's portfolios" after a brutal start to the year for stocks. Oil prices, U.S. equities and some emerging markets have since stabilized. U.S. crude prices are up 7 percent this year, while the has climbed nearly 8 percent in the last three months.

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While "it's off the table now," dollar strength could return, Zervos contended.

A Trump nomination after the GOP convention in July, or a surge in popularity, could fuel fears about trade, he said. That may drive nervous investors to the dollar.

Meanwhile, a British exit from the EU could sap confidence from the union. It may send some investors away from the euro and into the dollar, driving the greenback higher.

A Brexit brings the possibility of parity between the euro and the dollar, Zervos said.