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2017’s big ‘wild card’ will be the US dollar getting weaker, not stronger, strategist Jim Paulsen says

The Federal Reserve's long-awaited rate hike, expected to come in December, could have some unexpected effects, strategist Jim Paulsen told CNBC on Monday.

Paulsen, Wells Capital Management's chief investment strategist, voiced his theory for "the big wild card in 2017" on "Squawk Box."

"I think the dollar's going to go down, not up," he said. "There [have] been five major increases in the funds rates since the 1970s, and every one of them, when the Fed raised rates, the dollar came down."

The strategist said what's driving rates higher are rising inflation expectations, which could in turn hurt dollar strength. "As inflation expectations go north, that's a deterrent and a negative for the U.S. dollar," he said.

Paulsen said this activity could boost international returns in the coming year, as global stocks become more attractive to investors eyeing opportunities abroad.

"I think those markets are underowned, they've underperformed for several years. … They're better relative values," Paulsen said. "They have younger earnings cycles than the more mature cycle in the United States. They're going to have longer policy support than the United States will."

Appearing on "Squawk Box" with Paulsen, Russell Investments' chief market strategist Stephen Wood agreed that now may be a good time for investors to take a more global perspective.

"What we've seen is that political headlines can create opportunities" in the market, Wood said. "We've seen opportunities coming out of Brexit, we've seen opportunities potentially coming out of Italy," where a referendum vote in December could send global markets reeling.

And, with valuations abroad looking better than those in the United States, and central banks in Europe committing to deflationary measures like quantitative easing, Wood had a word of advice for those looking to capitalize:

"As you get this divergence between the U.S. and other areas of the world, just be selective and be active."


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