To knit a circle, try starting with maybe 5-10 stitches, and increase 1 or 2 stitches at each side until the width is right, then decrease again (depending on your gauge). The tricky part would be making a nice circular arc instead of a straight angled line!
I think it'd be much easier to crochet a flat circle in the round. Is it possible to knit a flat circle in the round? (like a doily, without the lace)