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UPDATE 1-Sterling struggles as threat of a no-deal Brexit grows

Olga Cotaga

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv (Updates prices and quotes, adds chart)

LONDON, Aug 29 (Reuters) - The pound steadied on Thursday after weakening in the previous session when British Prime Minister Boris Johnson said he would suspend parliament for more than a month from early September. The move limits the time Johnson's opponents have to prevent the UK from exiting the European Union without a divorce deal on October 31 and also increases the chances he will face a vote of no confidence and possibly a general election.

Sterling was down 0.1% at $1.2196 by 1130 GMT and weaker by the same amount against the euro at 90.73 pence , having fallen to a six-day low against both currencies on Wednesday. "This price action reflects concerns that the little time that remains for parliament to attempt to block a no-deal Brexit, will now be even shorter," said Lee Hardman, currency analyst at MUFG. The pound's decline has been relatively modest because most investors already thought a no-deal Brexit was the most likely outcome, judging by positioning data and derivatives pricing, analysts said. Implied sterling volatility, seen in the three-month option price which covers the Brexit deadline date, rose on Thursday to its highest level since December last year. Most members of parliament oppose a no-deal Brexit and they still have some time to call a vote of no confidence, but Johnson is not bound by law to resign, which complicates things further, analysts say. Parliament re-opens for business on Sept. 3, but will be prorogued -- suspended -- the following week until Oct. 14.

Johnson has rejected accusations he is trying to prevent lawmakers from delaying Britain's EU departure. Risk reversals - the skew between put and call options - suggest traders see the pound as more likely to fall than rise in the next three months.

Hedge funds' positioning paints a similar picture judging by the $7.028 billion of net short sterling positions leveraged funds own, almost as much as two and a half years ago. However, if a Brexit deal is agreed on or before the deadline or if Britain and the EU were to agree to put back the departure date by extending the so-called Article 50, the pound could strengthen sharply as there are no barriers to prevent it doing so, analysts say. "Despite the noise, the poor mood music and proroguing, the path of least resistance is still for sterling topside as a lot of the negativity is in the price," said Jordan Rochester, currency analyst at Nomura.

"But Remainer MPs have to act fast and swiftly for this tactical trade to become longer term," Rochester said, adding the bank held a short euro/sterling position.

(Reporting by Olga Cotaga, editing by Larry King, Kirsten Donovan)