Fed funds futures traders now see the Federal Reserve as more likely to hike interest rates next month than leave them unchanged, as economic data beats expectations and lawmakers appear to have reached a deal to raise the debt ceiling.

The market is now pricing for a 63% chance of a 25 basis point increase at the Fed's June 13-14 meeting.

Traders have also almost priced out all the rate cuts they had previously expected in the second half of this year, with only 10 basis points in cuts now priced in for December.

The odds of a further hike have been increasing as economic data beats expectations and inflation remains stubbornly above the U.S. central bank's 2% target.

A deal to raise the U.S. debt ceiling and avoid a potential default will also remove headwinds that have threatened to harm economic growth and keep the Fed on the sidelines.