The dollar fell to an all-time low against the euro yesterday 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.
Late yesterday, 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 this week.
Crude oil prices were up 2.2 percent in New York, to $79.91 a barrel, after briefly trading above $80, a day after the Organization of Petroleum Exporting Countries said that its members would increase production by a modest amount.
Taken together, these two factors signaled more troubles for the American economy.
Gold prices, which were little changed yesterday, also have surged in recent days as fears of a recession have mounted and the dollar has weakened.
Though the dollar has been falling against other 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 and that job growth had been weaker in July and June then previously thought.
Investors widely expect the Federal Reserve to cut its key short-term interest rate, now at 5.25 percent, when it meets Tuesday. Some think the cut could be as much as half a percentage point.
"The payroll report was seen as a macroeconomic justification or the coup de grace 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 many factors, chief among them expectations for interest rates and inflation. If interest rates were to fall in the United States and remain unchanged in Europe, as many investors are expecting, traders will probably bid up the price of euros.
"The dollar is not in a great position," said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Conn. "The confidence level is eroding in the face of the credit market crisis, which is very much subprime related and mortgage market related. And it is now complicated by the fact that the real economy is slowing."
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 past few days.
A weakening dollar has been 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 11.4 percent in the first eight months from the corresponding period last year. By comparison, imports were up 4.6 percent.
Conversely, the depreciating dollar has made imports more expensive. Energy commodities are expected to be chief among those things.
Oil prices, already near records set two months ago, have surged in recent weeks. The decision by the Organization of Petroleum Exporting Countries on Tuesday to increase production by 500,000 barrels a day, a relatively small amount when compared with total production, appeared to make little difference.
Yesterday, prices also were reacting to a weekly government report that showed crude oil inventories fell in the United States by 2.1 percent last week.
More broadly and in the longer term, many analysts say oil prices are poised to go higher because global demand for energy led by China and India is growing far faster than overall production, especially among oil producers that are not members of OPEC.
"The combination of robust long-term demand growth and lagging non-OPEC supply suggests that strong support for oil prices is set to remain a feature of the markets beyond 2010," Adam Sieminski, an analyst at Deutsche Bank, wrote in a research note.
Those higher prices, along with the increase in the price of other imports, will provide another source of worry for the American economy and consumers. It also could complicate the Fed's task, said Dustin Reid, a senior currency strategist at ABN Amro in Chicago. If inflation were to surge, policymakers would have a harder time justifying a big or prolonged series of rate cuts.
"At some point, you are going to have the potential of importing inflation from around the globe," Reid said. "And that's likely to keep the Fed on guard."