* Dollar index up 0.2% as Biden offers $1.9 trillion stimulus
* COVID-19 infections rise in China
* Graphic: World FX rates tmsnrt.rs/2RBWI5E
LONDON, Jan 15 (Reuters) – The dollar rose and riskier currencies fell on Friday, as President-elect Joe Biden rolled out a $1.9 trillion stimulus plan that was offset by fresh U.S.-China tensions and a rise in COVID-19 infections in China.
The dollar index is on track for its biggest weekly gain since November 2020, with its recent recovery from three-year lows challenging the narrative of dollar bearishness for 2021.
Although the dollar’s rebound slowed somewhat 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, it picked up again as European markets opened.
At 0830 GMT, the dollar index was at 90.458 versus a basket of currencies, up 0.2% on the day. It was on track for a weekly gain of around 0.4%, making this its strongest week since November 2020.
Against a stronger dollar, the euro was down 0.3% at $1.2121 at 0831 GMT.
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 as to 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, and the details of the fiscal package suggest the overall size will be whittled down before it gets the support required to get through the Senate,” MUFG currency strategist Derek Halpenny wrote in a note to clients.
“While short-term, the US dollar could extend further, the big-picture backdrop for the dollar remains negative. Fed rhetoric and even a watered-down Biden fiscal plan underline the negative backdrop that lies ahead,” he added.
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 firmly opposes.
Rising COVID-19 infections also hurt 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 COVID-19 mutations after Germany had a record number of deaths.
The Australian dollar – seen as a liquid proxy for risk – was down around 0.5% at 0.7738 versus the U.S. dollar. The New Zealand dollar was also down on the day, by around 0.6% .
The dollar rose around 0.2% against China’s offshore yuan, with the pair changing hands at 6.477 at 0834 GMT.
A vice governor at the People’s Bank of China said on Friday that China’s monetary policy would provide the necessary support for the country’s economic recovery in 2021 and the central bank would keep the yuan stable.
Reporting by Elizabeth Howcroft, editing by Larry King