* Sterling steady as no-deal Brexit fears recede
* Volatility gauges signal temporary calm for the pound
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv(Updates prices, adds quote, context)
By Tommy Wilkes and Olga Cotaga
LONDON, Sept 11 (Reuters) - Sterling was steady onWednesday, lingering below a six-week high against the dollarreached on Monday, as investors assessed the chances PrimeMinister Boris Johnson can strike a Brexit deal with theEuropean Union before Oct. 31.
The probability of a no-deal Brexit was still very much aconcern for traders, given that Johnson stood firm on takingBritain out of the EU by the end of next month.
But the British parliament approved legislation which forcesJohnson to request a deadline extension from Brussels if hecannot agree on a deal with the EU by mid-October.
Investors, calculating that the risk of no-deal Brexit isreceding after the law passed, have pushed sterling from under$1.20, the three-year low it reached early last week, to as highas $1.2385 on Monday.
"Versus a year ago, no-deal risks are higher, but on balanceno-deal risks over the last week or so have reduced," saidJustin Onuekwusi, fund manager at Legal & General.
By 1445 GMT on Wednesday, sterling was at $1.2347, down 0.1%. Against the euro, however, the pound gained 0.3% to0.8907.
The pound has also been supported this week bybetter-than-expected economic data, which confounded earlierexpectations that the U.K. would fall into recession thisquarter.
ING analysts said the pound had rebounded as traders bettingagainst it were forced to close their positions.
"With the short squeeze in sterling under way, we haveobserved a general reduction in various sterling risk premiameasures over the past week," they wrote.
Volatility gauges suggest investors think the next "stressperiod" for the pound will come in late November and earlyDecember, the ING analysts said.
Sterling implied volatility embedded in two-month optionprices which encapsulate the Brexit October deadline, has fallento 9.35 vols from 15.45 vols reached at the beginning ofSeptember, its highest since the Brexit referendum in June 2016.
"With the U.K. Parliament suspended for the next five weeks,the pound may enjoy some more calm today / this week, but weexpect pressure on sterling to return once the early electionsare announced," the ING analysts said.(Reporting by Tommy Wilkes, editing by Larry King and DanGrebler)