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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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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