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DC drama is causing 'big headaches' for stocks and the dollar, and it could get worse

Some strategists foresee further downside for the U.S. dollar's relative value as questions swirl around the likelihood of the Trump administration passing any tax reform-related legislation.

"The disillusion of parts of Donald Trump's administration is causing big headaches; it's really affected the stock market, but also the U.S. dollar," said Kathy Lien, managing director of foreign exchange strategy at BK Asset Management.

Major U.S. markets slid on Thursday, as the S&P 500 and Dow Jones industrial average both posted their second-worst session of the year; the Nasdaq Composite posted its third-worst day of the year. The U.S. dollar index held steady and pared its gains throughout the session, though it closed positive at 93.66.

The dollar has dropped off its recent highs in the last few weeks even as some economic data have been relatively healthy, Lien pointed out Thursday on CNBC's "Trading Nation."

"Investors are getting nervous because there seems to be no clarity in sight. We could see the U.S. dollar index continue to fall, possibly get below 93 to 92.50 or so," Lien said.

Thursday's market sell-off came one day after Trump's manufacturing council disbanded.

"That reflects the business environment that we could be looking forward to in the coming months, because if businesses don't have confidence in the president, they're not going to necessarily have confidence in the economy going forward," she said.

Many political headlines can be "distractions," Lien added, making the point that when trading currencies, it is important to keep the Federal Reserve's policy trajectory in mind as well.

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Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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