Dollar sinks to new euro low as Fed prints more money; Saudi to drop dollar peg?

NEW YORK, Sept 20, 2007 (AFP) – The dollar sank to a record low against the euro Thursday after Federal Reserve chairman Ben Bernanke warned that US mortgage woes may deepen, raising hopes of interest rate cuts.

Also weighing on the US currency were rumors that Saudi Arabia is going to drop the domestic currency’s peg to the dollar, analysts said.

The euro was at 1.4065 dollars around 2100 GMT, up from 1.3957 late Wednesday in New York. Earlier the single European currency had spiked to a new record high of 1.4098 dollars.

The euro fell to 161.25 yen from 162.02 late Thursday and the dollar dropped to 114.63 yen from 116.07 yen.

In testimony to the US Congress, Fed chairman Bernanke said the US central bank cut rates and added liquidity to the financial system amid “significant market stress” and unexpectedly large losses in the housing sector.

The economy and markets reacted to losses in the area of subprime mortgages that “have far exceeded even the most pessimistic estimates,” he told the House of Representatives’s Committee on Financial Services.

Bernanke predicted that the problem would get worse as more homeowners face difficulties making payments on adjustable rate mortgages