Déjà Vu? The Market Impacts of Brexit and United States Tariff Declaration

The United Kingdom’s decision to leave the European Union, commonly known as Brexit, and the announcement of extensive global tariffs by the United States have both had significant near-term (Liberation Day) and long-term (Brexit) impacts on the global economy. While the two events are distinct, they share some similarities in their market effects. In this article, we compare the market impacts of Brexit and US tariff declarations, as well as examine the reactions of the British pound sterling, US dollar (USD) and gold prices.

The United Kingdom’s intent to exit the European Union was officially announced in February 2016 and approved by voter referendum in June 2016, triggering a sharp decline in the pound sterling and a fall in UK equity markets. However, the FTSE 100 index recovered in short order as the weaker currency boosted exports and profitability of UK multinational companies. Defying widespread expectations of certain calamity, the UK economy showed resilience Content through the following two years with the FTSE 100 index reaching a record high in May 2018. Despite the long-running uncertainty surrounding Brexit, the UK economy and equity markets ultimately held up far better than expected.

In contrast, the wide-ranging changes in trade policy pursued by the United States in the early days of the second Trump Administration has led to a more immediate and acute market reaction. The announcement on April 2, 2025, of a base tariff of 10% on virtually all US trading partners coupled with additional and sizable “reciprocal” levies on a host of countries sparked a surge in market volatility as the S&P® 500 tumbled by 10.5% while shedding over $6 trillion in market value over the subsequent two trading days. Market uncertainty was further compounded just a week later as the Trump Administration reversed course and paused most levies for 90 days. The announcement of new unilateral tariff rates on May 16, 2025, fueled further market uncertainty as investors grappled with the on-again, off-again nature of US trade policy announcements.

One of the key similarities between Brexit and the ongoing change in US trade policy has been the impact on currency markets. The pound sterling weakened significantly following the Brexit referendum in June 2016 and remained volatile throughout the subsequent negotiation process. Given its preeminent position in global trade, confidence in the USD began to decline several weeks prior to the April 2 “Liberation Day” announcement and has continued to depreciate as markets wrestle with the ultimate outcome of US trade policies. As can be seen in our analysis in the chart, “Pound Sterling vs. USD" (Trade-Weighted Index), both the pound sterling and the USD have followed very similar trajectories in the 60 days before and 60 days following their respective Brexit Referendum and Liberation Day events. 

Another key similarity between Brexit and the ongoing overhaul of US trade policy can be seen in the response of gold, which often takes on the role of a safe-haven asset in times of heightened uncertainty. As can be seen in the left-hand chart below, gold prices rose sharply at the outset of Brexit while the pound sterling depreciated significantly, ultimately ending the 5- year Brexit process 10% lower. Similarly, the USD has fallen by 7.5% since the start of 2025 while gold prices have moved sharply higher. And while the depreciation of the USD has so far played out over a much shorter time horizon, the movement in gold prices have followed a similar trajectory as what occurred in the early days of Brexit, as can be seen in the right-hand chart below.

In the current environment as global trade developments continue, it is likely that we will see further market volatility and uncertainty, and it is essential to monitor the reactions of currencies and assets like gold to navigate these challenges.

Ultimately, the market impacts of Brexit and US trade policy serve as a reminder of the interconnectedness of the global economy, and the need for businesses and investors to be aware of the potential risks and opportunities that arise from major economic events. By understanding the similarities and differences between these events, we can better navigate the complexities of the global economy and make more informed decisions about our investments and business strategies.