The euro is facing a 10 per cent correction toward parity with the US dollar as early as the third quarter, due to the escalation of the Greek crisis and the country’s possible exit from the euro zone. The worsening situation in Greece will likely accelerate the sell-off of the euro as investors cash out from Greece and other European markets amid fears over financial market turmoil, said a report by ABN AMRO. “[The] Greek No-vote will result in a sharp deterioration in sentiment and hurt foreign exchange with weak fundamentals,” said ABN AMRO senior foreign exchange strategist Roy Teo in a note. “We expect a risk-off scenario with safe haven currencies benefiting. It is likely that the euro will fall under pressure across the board,” he wrote. The euro could test the previous low on March 13 of just below 1.05 in the days ahead, and continue to fall into parity with the greenback in the third quarter and remain so for the rest of the year, he said. The euro was trading around 1.1 on late Tuesday. Koon How Heng, senior currency strategist at Credit Suisse Private Banking and Wealth Management, held a similar view. “We maintain our core negative view on EUR/USD and expect renewed weakness below 1.10, and eventually towards parity,” he wrote in a report. On Monday evening, the European Central Bank’s governing council decided to restrict its Emergency Liquidity Assistance (ELA) for Greek banks, meaning that the nation’s funds could evaporate within days. The decision came after the nation voted “no” to an aid-for-reform package from its creditors on Sunday. The focus of meetings such as Tuesday’s gathering of euro group finance ministers was to discuss whether a deal can be struck with Athens before the nation runs out of cash. The drag on the euro is not only limited to risks from Grexit. One potential problem is that foreign exchange markets have not priced in the scenario whereby the US Federal Reserve will raise interest rates this year. Teo warns of significant repricing risks as the Fed may still be on track to raise rates in September regardless of external economic turmoil and if that materialises, the euro could undergo a sharp correction from its current level. In addition, the European Central Bank could backload its monthly asset purchases after the summer lull period and thus boost money supply in the banking system, which would normally be negative for the euro, he said. Asian currencies have been more resilient compared to other emerging market currencies due to better economic fundamentals and smaller economic exposure to Greece. The Chinese yuan, Hong Kong dollar and Taiwan dollar could weather the turmoil in the foreign exchange market, Teo said. “We expect the Chinese yuan to be the most resilient given that the exchange rate regime is less open and the central bank has large foreign currency reserves to limit volatility in the yuan,” he said. The Indonesian rupiah, on the other hand, could become the worst performer among Asian currencies given its relatively weak growth inflation dynamics and Jakarta’s currency account deficit.