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UPDATE 1-Pound slips from six-week high vs dlr as Johnson sticks to Oct 31 Brexit pledge

Sujata Rao

Brexit pledge@

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

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

LONDON, Sept 17 (Reuters) - Sterling retreated from six-week highs against the dollar on Tuesday as Prime Minister Boris Johnson stuck to his pledge to take Britain out of the European Union by Oct. 31, vowing not to seek an extension to the deadline.

He is required by a law passed this month to ask the EU for a three-month delay to Brexit if a deal is not approved by Oct. 19, but British media reports say his team are looking at ways to circumvent it. Johnson said on Monday Brexit would happen on Oct. 31, with or without a deal.

Britain's top court has started to hear the government's argument that Johnson's decision to suspend parliament until shortly before the Brexit date was not illegal as Scottish judges concluded last week.

His opponents say the suspension was aimed at impeding parliament from preventing a no-deal Brexit, an accusation Johnson denies.

"The decisive question for the pound exchange rates remains whether or not a no-deal Brexit at the end of October is de facto off the agenda," Commerzbank analysts told clients, adding that latest developments showed sterling's recent rally was not justified.

The currency has firmed more than 3% in the past month, its gains accelerating after parliament passed the law ruling out no-deal Brexit. It jumped 1.3% last Friday, grasping at a headline -- later denied -- that Johnson's Northern Ireland allies may soften their Brexit stance.

By 1000 GMT, the pound was 0.2% lower at $1.2399 after also losing ground on Monday.

The currency is also being buffeted by the volatile dollar, which rose late on Monday as oil prices eased and trade tensions with Japan appeared to cool. The greenback inched to a five-day high against a basket of currencies ahead of the U.S. Federal Reserve's policy meeting this week.

Against the euro, sterling fell 0.3% to 88.9 pence having touched a three-month high on Monday.

With less than seven weeks until the Brexit deadline, Johnson is hoping a Brexit deal can be clinched at an EU summit on Oct. 17-18. He said a Brexit deal was emerging, but the EU said he had offered nothing to break the impasse.

Commerzbank noted that on options markets, insuring against a steep pound fall still carries a sizeable premium.

That shows "options traders do not exclude a major sterling bang" they added.

Two month implied sterling volatility, the contract encompassing the Brexit deadline and a possible general election, ticked up to a one-week high.

Two-month volatility was over 15 vols in early-September before tumbling last week to a 9.3 vols low. It stands now around 10.3 vols. Meanwhile three-month volatility, with mid-December expiry, has risen one vol in the past week as investors try to price election risk.

Also, reflecting Brexit jitters, Bank of America Merrill Lynch's monthly fund manager survey showed investors increased their underweight on UK equities to 30% in September.

(Reporting by Sujata Rao and Saikat Chatterjee; Editing by Catherine Evans, William Maclean)