Oil Prices Surge and Dollar Falls

The dollar fell to an all-time low against the euro today and oil prices surged to a record, suggesting that a weaker American economy will be accompanied by higher prices for energy and other imported goods.

As of early this afternoon, one euro was trading at $1.391, up from $1.384 on Tuesday evening; the euro is up 5.4 percent against the dollar so far this year and about 1 percent so far this week. Crude oil prices were up 2.2 percent, to $79.91 a barrel, after briefly trading above $80, a day after OPEC said its members would increase production by a modest amount.

The Federal Reserve is widely expected to cut its benchmark lending rate when its policy-making committee meets on Tuesday, after a report released last week suggested that the troubled housing market was hurting the broader economy more severely than had been previously thought.

Gold prices, which were little changed today, have also surged in recent days as fears of a recession have mounted. Gold futures are up 5.7 percent so far this month, to $714 an ounce on the New York Mercantile Exchange.

In the stock market, trading was light and stocks were mixed. The Standard & Poor’s 500-stock index ended the day essentially even, and the Dow Jones industrial average closed down 0.1 percent. Treasuries were down slightly.

Though the dollar had been falling against foreign currencies for much of the year, it has weakened significantly since Friday, when a government report showed that businesses reduced net employment by 4,000 in August. Now, investors widely expect that the Federal Reserve will cut its key short-term interest rate, now at 5.25 percent, when it meets next week. Some think that policy makers will cut the rate by as much as half a percentage point.

“The payroll report was seen as a macro economic justification or the coup de grâce for expectations of a rate cut next week,” said Ashraf Laidi, chief foreign currency analyst at CMC Markets in New York.

Currencies are influenced by a number of factors, chief among those are expectations for interest rates and inflation. If interest rates were indeed to fall in the United States and remain unchanged in Europe, as many investors are expecting, markets are likely to bid up the price of euros.

The dollar has also been falling against the British pound and the Canadian and Australian dollars. The Japanese yen is up about 4 percent against the dollar for the year, though it has lost some ground in the last few days.

The weakening dollar will be a boon to exporters whose goods and services will become more competitive on the world market. Exports have been one of the brightest spots in the American economy this year, growing at an annual pace of about 11.3 percent while imports have been growing at about 4.6 percent.

Conversely, the depreciating dollar will make imports more expensive. Many investors believe energy commodities will be among those things.

Already near records that it set just two months ago, oil prices have surged in recent weeks. The decision by the Organization of the Petroleum Exporting Countries on Tuesday to increase production by 500,000 barrels a day, a relatively small amount when compared to total production, appeared to make little difference. Analysts said that was largely because global demand for energy led by the fast-growing economies of China and India is growing far faster than overall production, especially among oil producers that are not members of OPEC.