If you put the wiggle as your arrow pass, that big knot will be at the upper part of the grip and in the fade, where there is alot of stress. I can't tell how far it goes across the stave, but I think there's a good chance it will get a big crack across it during tillering and be likely to break shortly after. It's not the left-right wiggle that I'd be worried about, but that big knot underneath.
So, I'd put the wiggle in the working part of the limb. Looking at the picture, I think the degree of wiggle is actually less than what the stave shows at first glance. There's a chunk of wood missing at the apex of the curve on the right, and some useless extra wood (as grain runout) below it. I loaded your photo up in MS Paint, and drew lines as precisely as I could with where I'd lay out the centerline, following the grain, and the limb edges. (It's tricky to freehand drawing a line with a mouse.) Lay it out for a 1.5" max width bow for starters and try to keep the wiggle as far to the upper limb tip as you can, so that it is in the narrowest part of the limb possible. (Hint: If you make the bow with asymmetrical limbs, it will help get the wiggle out farther on the upper limb.) Then take a rasp and carefully work the wiggle down to the line. Check and see if you've removed all of the knot. If so, you're good to go. If not, re-lay out the limb widths to 1-3/8", 1-1/4", or even 1-1/8" wide and repeat. Do that in increments. You can re-establish the centerline closer to the left side of the stave each time to get even further from the knot. Once you are clear of the knot and have determined the width you have to work with, you can decide on the bow's length. If just a hint of the knot remains, one final trick to chewing off that knot is to make a very radiused belly instead of a flat belly.
That's what I can offer anyway. There's lots of preliminary pencil work, grain tracing, and test rasping involved sometimes to get the best bow there is out of a stave. Time spent on the front end of a bowmaking project is well worth preventing trouble later on. One last thing...when you're tracing the centerline of the bow, do it completely from end to end (not just at the knot) to be sure you don't have grain runout farther away that will limit where the centerline can go.