* Dollar index up 0.2% as Biden offers $1.9 trillion stimulus
* COVID-19 infections rise in China
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E (Updates prices, adds commentary, adds detail about dollar)
By Elizabeth Howcroft
LONDON, Jan 15 (Reuters) – Currency markets turned risk-averse on Friday, with the dollar on track for its biggest weekly gain since November 2020 and analysts predicting further short-term strength as rising coronavirus infections limit risk appetite.
The dollar index’s rebound from three-year lows began last week. It picked up as European markets opened on Friday, having slowed overnight after U.S. Federal Reserve Chair Jerome Powell said “now is not the time” to be talking about changing the Fed’s asset purchases.
President-elect Biden laid out his $1.9 trillion stimulus package proposal on Thursday, but analysts said that the market impact was limited by uncertainty over how easily Democrats will be able to get their proposals through the Senate.
“The reality is that while the Democrats now have increased power having won the run-off elections in Georgia last week, that power still has its limits,” MUFG currency strategist Derek Halpenny wrote in a note to clients.
“While short-term, the U.S. dollar could extend further, the big-picture backdrop for the dollar remains negative,” he added.
At 1141 GMT, the dollar index was at 90.407 versus a basket of currencies, up 0.2% on the day. It was set for a weekly gain of around 0.4%, making this its strongest week since November.
Against a stronger dollar, the euro was down 0.2% at $1.21325.
Rising coronavirus infections also curbed risk appetite, as daily cases in China hit their highest in more than 10 months.
France will tighten its COVID-19 border controls and bring its curfew forward by two hours, while German Chancellor Angela Merkel said she wanted “very fast action” to counter the spread of virus variants after Germany had a record number of deaths.
“Rising new cases globally have induced headwinds to the short-term economic recovery,” said Simon Harvey, senior FX analyst at Monex Europe.
“It’s a bit more favourable at the moment in the U.S.. There’s rising case counts, but not necessarily nationwide restrictions being rolled out,” he said, adding he expected the dollar to be supported while other major economies are subject to tighter lockdown measures.
The outgoing Trump administration ramped up tensions with China, imposing sanctions on Chinese officials and companies, including an investment ban on nine additional companies – moves China said it opposes.
The Australian dollar – seen as a liquid proxy for risk – was down around 0.6% at 0.7736 versus the U.S. dollar at 1147 GMT. The New Zealand dollar was also down around 0.6% on the day.
The dollar rose around 0.2% against China’s offshore yuan, with the pair changing hands at 6.476 at 1148 GMT.
(Reporting by Elizabeth Howcroft, editing by Larry King and Barbara Lewis)