A storm is brewing in U.S. markets, and one Wall Street expert says the safest umbrella is made of green.
Bulltick Capital Markets' Kathryn Rooney Vera warned CNBC this week that a showdown is looming between President Donald Trump and House Speaker Paul Ryan over budget cuts, and the fallout could shake markets.
According to the analyst, part of the problem is that investors appear to be operating as if corporate tax cuts are a done deal. This misconception, along with emerging divisions in reforming Obamacare and pulling off a border adjustment tax, could negatively impact U.S. markets.
That could also boost the U.S. dollar, she added.
"The dollar goes up 20 percent if we have a border adjustment tax," Vera told CNBC "Futures Now" this week, when asked if investors should seek safety. For several reasons, she argued a tax on imports—an idea that's polarized Democrats and Republicans alike—could be beneficial for the greenback.
"Economic principle says that a value added tax accompanied by, perhaps, a wage deduction is positive for the dollar," Vera said. "The fact is, we're the only country in the developed world that doesn't have a value added tax that's border-adjusted and that also has a corporate income tax structure."
Value added taxes (VAT) function as a levy on consumption rather than on savings and investment, and are widely used in Europe and other parts of the world. However, some economists argue the VAT disproportionately hits lower income consumers, and as a result the U.S. should be wary of implementing one of its own.
Vera contended that a border adjustment tax would be a major revenue generator for the U.S. economy as it turns, "a vice into a virtue. We have huge trade deficit. A border adjustment tax would allow us to tax that. Imports get taxed while exports get subsidized."
While Vera warned that a Trump administration policy logjam would be negative for markets and the dollar, she was relatively confident the GOP majority could achieve results.
"My contention is that tax reform is going to come alongside a debt ceiling increase," said Vera, speaking about the March 15 deadline for Washington to set a new statutory borrowing limit.
"A Republican-controlled Congress is going to require it," Vera said. "Increasing the debt ceiling without some off-setting measures would be politically complicated."
'Le Pen could win'
Separately, the dollar could win by default, with the euro sagging under the weight of European political uncertainty. The rise of French nationalist presidential candidate Marine Le Pen—who has threatened to pull France out of the euro zone— has the potential to undermine the single currency even further.
Although the euro popped by more than a percent on Friday, the currency has shed more than 4 percent over the last year against the U.S. dollar.
"Le Pen could feasibly win. Populism could sweep her into office. It's not being priced in, but she's going to win in the first round," warned Vera. "She could then pull out a surprise in the second round. If she were to, then we would see the euro fall and we would see dollar strengthen."
As a result, "the dollar is going to stay in a strong range," added Vera. "It's a tactical call. A debt ceiling [deal] and tax reform would lead to the dollar higher. I think we test $103 in the dollar index in the next couple of months."
Despite taking a leg lower on Friday, the has rallied 4 percent since the election, trading near 101 on Friday.