FOREX-Risk currencies recover some losses; dollar stabilises below 2-month highs

* Dollar index down less than 0.1% on day
* Aussie and Kiwi rise 0.5-0.6%
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Elizabeth Howcroft
LONDON, Sept 25 (Reuters) - The dollar stabilised below its
recent two-month highs on Friday and riskier currencies erased
some of their weekly losses, while equity markets got a lift
from hopes that U.S. fiscal stimulus talks would resume.
The dollar is on track for it best week since early April,
driven by risk aversion that made traders quit their dollar
shorts as the outlook for the global economic recovery darkened
with a second wave of COVID-19 cases in Europe. It pulled back slightly on Friday, with riskier currencies,
which have fallen sharply this week, gaining in early London
trading.
Stocks rose after a late tech-driven rally on Wall Street,
with sentiment boosted by a key lawmaker saying Democrats in the
U.S. House of Representatives are working on a $2.2 trillion
coronavirus stimulus package that could be voted on next week.
The New Zealand dollar rose to 0.6584, up 0.6% since New
York's close but still down 2.6% on the week NZD=D3 .
The Australian dollar rose 0.5% to as much as $0.7086 at
0724 GMT, but was still having its worst week against the dollar
since March AUD=D3 .
"Pro-cyclical currencies started finding some respite as US
equities showed signs of life yesterday and the dollar faced a
correction after a week-long rally," wrote ING strategists in a
note to clients.
"While it is tempting to call for the end of the USD run as
the risk environment appears to be stabilizing, caution is
warranted," they said.
At 0738 GMT, the dollar index against a basket of currencies
was down less than 0.1% on the day at 94.246 =USD but up 1.3%
on the week - its biggest weekly jump in nearly six months.
"The re-pricing of global recovery expectations may remain a
key narrative in markets for longer as more evidence of rising
contagion waves (in particular in Europe) is set to fuel
concerns about new lockdown measures and their economic impact,"
ING said.
EU health officials warned on Thursday of "twindemic", as a
surge in COVID-19 cases in Europe risks combining with flu
infections. Britain announced new lockdown measures on Tuesday, while
France reported that the number of people in intensive care due
to the coronavirus jumped over 1,000 for the first time since
early June. The euro rose 0.1% on Friday to $1.1676 EUR=EBS , but is
down 1.4% on the week.
Although investors remain cautious over the upcoming U.S.
elections, a return to the dollar surge of March is not
expected.
"The ongoing political battle over the nomination of a new
Supreme Court justice has increased investors' sensitivity to US
politics and decreased their willingness to expose themselves to
dollar moves ahead of the November elections," UBS strategists
Gaétan Peroux and Tilmann Kolb said in a note.
"While we expect further USD strength in the short term as
the speculative positioning washout continues, we continue to
hold a long-term bearish view on the dollar at current
overvalued levels," they added.
The yen rose slightly against the dollar to 105.385
JPY=EBS , while the Swiss franc gained around 0.1% against the
euro EURCHF=EBS .