NEW YORK U.S. interest rates futures fell on Thursday as traders were close to fully pricing in an interest rate increase from the Federal Reserve at its upcoming policy meeting in the wake of unexpectedly strong data on factory activity and private jobs growth.
A number of Fed officials in recent days issued a similar message that the Federal Open Market Committee, the central bank's policy-setting group, is preparing for another rate hike soon. In March, it raised key interest rates by a quarter-point to 0.75-1.00 percent.
On Thursday, Fed Governor Jerome Powell signaled the U.S. economic expansion warrants further rate hikes as it approaches full employment and inflation is moving closer to the Fed's 2-percent goal.
Meanwhile, the Institute for Supply Management said its barometer of U.S. factory activity edged up to 54.9 last month from 54.8 in April, while ADP reported private payrolls grew by 253,000 last month, beating analysts' median forecast of a 185,000 increase.
"It does help indicate continued and increasing strength in the overall U.S. employment picture, which bodes very well for an impending Fed rate hike," Gain Capital's head of research James Chen wrote in a research note on the latest ADP data.
On Friday, the U.S. Labor Department will release its monthly non-farm payrolls report for May at 8:30 a.m. (1230 GMT).
Analysts polled by Reuters forecast employers likely added 185,00 workers in May, down from a 211,000 gain in April, while the jobless rate likely held at 4.4 percent, a near 10-year low.
"This jobs report will be of critical importance for the Fed, especially since June’s FOMC meeting is less than two weeks away," Chen noted.
In late Thursday trading, federal funds futures implied traders saw a 96 percent chance the U.S. central bank would increase key overnight borrowing costs by a quarter point, to 1.00-1.25 percent, at its June 13-14 policy meeting FFM7 FFN7. This was up from about 91 percent late on Wednesday, CME Group's FedWatch program showed.
Fed funds futures suggested traders priced in about a 50 percent probability of another rate hike after June and before the end of 2017 FFZ7 FFF8, compared with 46 percent on Wednesday.
(Reporting by Richard Leong)