ETF Spotlight: EWU Takes Center Stage as Trade Deal Unfolds
- The UK is in focus after striking a post-“reciprocal tariff” trade agreement with the Trump administration.
- EWU fell on the day but held onto strong year-to-date returns.
The United Kingdom took center stage in markets this week after becoming the first country to strike a post-“reciprocal tariff” trade agreement with the Trump administration. Though the deal isn't finalized or signed, President Donald Trump lauded it as a “breakthrough,” framing it as a win for his hardline trade strategy.
Ironically, U.K. stocks didn’t seem to celebrate. The iShares MSCI United Kingdom ETF (EWU) dipped 0.4% on Thursday, the day of the announcement. Still, the fund is up 13% year to date, far outpacing the S&P 500’s 2.8% decline. It even hit a 10-year high earlier in the week, underscoring the shift in investor sentiment this year toward international equities.
Source: FactSet
Currency Appreciation Boosts EWU
About half of EWU’s gains in 2025 come from the underlying performance of U.K. stocks. The other half is due to the pound’s appreciation against the U.S. dollar, a reminder that currency moves play a big role in the performance of international equity ETFs. For dollar-based investors, a rising pound provides an extra tailwind on top of any local equity gains.
Thursday’s muted reaction may reflect the underwhelming substance of the deal. Despite Trump’s tough rhetoric, the U.K. was never a major source of trade friction. Tariffs between the two countries were already modest before his “liberation day” tariffs raised them to 10%. That 10% rate will reportedly stay in place even under the new agreement.
According to the Office of the U.S. Trade Representative, the U.S. imported $68.1 billion worth of goods from the U.K. in 2024, while exporting $79.9 billion, making the U.K. a rare trade surplus partner. The new deal appears aimed more at avoiding escalation than achieving major trade liberalization.
For now, markets are shrugging off the fanfare. But the U.K.’s relative strength this year, boosted by both equities and currency, keeps EWU worth watching.
The stakes will be much higher in the weeks ahead as investors watch for potential trade agreements with larger U.S. trading partners like the European Union and China.
