The dollar rallied to a six-week high Wednesday after U.S. productivity increased at a larger-than-expected rate and sentiment surfaced that Europe's economy may have slowed considerably.

The dollar rose about 2 cents versus the euro -- a large move in the currency market -- to $1.5370 on Wednesday afternoon. The dollar also gained against the world's other major currencies, rising about 2 cents to $1.9530 versus the British poundת about 0.5 cents to $1.0555 versus the Swiss franc and about one-half yen to 104.85 yen versus Japan's yen.

U.S. productivity gives dollar a lift

Earlier in the day, the U.S. Labor Department announced that U.S. worker productivity increased at a 2.2% annual pace in Q1 2008, well above the 1.7% Bloomberg News survey consensus estimate.

Independent currency trader Andrew Resnick told BloggingStocks Wednesday the Q1 2008 productivity data, combined with a sense that the European Central Bank is behind-the-curve concerning interest rate cuts to deal with slowing economic growth, put traders in dollar-buy mode.

"There's a sense now in the market that some of the [economic] fundamentals may begin to favor the dollar now, and they've been against the dollar for so long. That's giving the dollar a lift," Resnick said. "Also, it's hard to believe the euro could find buyers at these levels, but we'll have to see. One negative data point against the dollar and sentiment could change." Resnick added that he is long with the dollar in the euro-dollar and British pound-dollar currency pairings.

U.S. economy bottoming?

Further, Resnick said that although the bulk of the fallout from the subprime mortgage / housing recession has affected the U.S. economy, there's a growing consensus that the U.S. economy is "approaching a bottom," whereas Europe "is at the beginning of their economic slowdown." The perspective is fairly nuanced, Resnick admitted, but if in fact the U.S.'s economic cycle is 'ahead' of the European one, that would increase the attractiveness of dollar-denominated investments, boosting demand for the dollar.

A key data point will occur Thursday when the ECB meets to discuss short-term interest rates, with a decision due at 7 a.m. EDT. Resnick said traders expect the ECB to keep its benchmark, short-term rate, the refinance rate, at 4%. But if the ECB's statement hints at slowing growth or economic sluggishness in the euro-zone, "that would build the case for a likely move higher by the dollar in the months ahead."