​FTSE steady as yen tumbles on Japan political chaos

​​​FTSE 100 treads water amid global uncertainty

​The FTSE 100 is showing resilience this morning, holding close to recent levels despite heightened political uncertainty across major economies. The index appears to be taking its cues from overseas developments rather than domestic factors, with investors adopting a cautious stance.

​Oil stocks are providing some support to the index, benefiting from crude's recent strength following the OPEC+ meeting. Shell and BP are among the early gainers, helping to offset weakness elsewhere in the market.

​The British pound's relative stability against major currencies is also providing some comfort to UK-focused stocks. Sterling has managed to hold its ground despite the broader risk-off sentiment affecting global markets.

​However, the overall mood remains tentative as traders digest the implications of political upheaval in Japan and France. The FTSE's performance over the coming sessions will likely depend heavily on how these situations develop and their impact on global risk appetite.

​Japanese yen collapses as political crisis deepens

​The Japanese yen has suffered its steepest decline in months following Prime Minister Shigeru Ishiba's announcement that he will step down. The currency has dropped 0.5% against the US dollar and hit multi-year lows against both the euro and sterling.

​This latest political upheaval comes at a particularly sensitive time for Japan's monetary policy outlook. The Bank of Japan (BoJ) has been gradually moving away from ultra-loose policies, but a new prime minister could potentially reverse this course.

​Former foreign minister Toshimitsu Motegi has already declared his candidacy for the leadership role. Markets will be closely watching his policy stance, particularly regarding monetary policy and Japan's approach to economic stimulus.

​The currency weakness has provided a boost to Japanese equities, with the Nikkei 225 climbing on expectations that exporters will benefit from the weaker yen. This dynamic highlights how political uncertainty can create both winners and losers across different asset classes.

​French political turmoil adds to European concerns

​France is facing its own political crisis as Prime Minister François Bayrou appears set to lose a confidence vote. This development is raising fresh concerns about the country's fiscal outlook and its ability to address mounting debt challenges.

​The political instability comes at a time when French borrowing costs are already elevated compared to German bonds. Any further deterioration in the political situation could see this spread widen, putting additional pressure on French assets.

​Credit rating agencies are likely monitoring the situation closely, with potential downgrades hanging over French debt if the political paralysis continues. This adds another layer of complexity to the European Central Bank's (ECB) policy considerations.

​The broader European equity markets are showing signs of strain as investors weigh the implications of political uncertainty across multiple major economies. This backdrop makes the relative stability of the FTSE 100 all the more noteworthy.

​Dollar softness persists after weak jobs data

​The dollar remains under pressure following Friday's disappointing US employment report, which has reinforced expectations for Federal Reserve (Fed) rate cuts. The weak data has shifted market expectations significantly, with futures now fully pricing in a rate cut in September.

​There's even a 10% probability being assigned to a 50 basis point move, reflecting the extent to which the jobs data has altered the Fed's policy calculus. This represents a marked shift from just a few weeks ago when markets were pricing in a more gradual easing cycle.

​The dollar's weakness is providing some relief to commodities priced in the greenback, including oil and gold. This dynamic is helping to support resource-heavy indices like the FTSE 100, which has significant exposure to mining and energy stocks.

​However, the currency's direction from here will largely depend on this week's inflation data and how it influences Fed expectations. A stronger-than-expected reading could quickly reverse some of the recent dollar weakness.

​Thursday's US CPI data takes centre stage

​All eyes are now turning to Thursday's US Consumer Price Index (CPI) release, which has taken on heightened significance following the weak jobs report. The inflation data will be crucial in determining whether the Fed opts for a standard 25 basis point cut or considers a larger move.

​Markets are particularly focused on the core CPI reading, which strips out volatile food and energy prices. Any surprise to the upside could quickly reshape Fed expectations and trigger a dollar rebound.

​The timing of the release also adds to its importance, coming just ahead of the Fed's policy meeting later this month. A weak reading would likely cement expectations for aggressive easing, while a strong number could force a reassessment.