Which economic factor contributed to the weakening of the Swiss franc?

The weakening of the Swiss franc can be closely tied to a surprise change in inflation expectations. When inflation expectations shift unexpectedly, it impacts monetary policy and can lead to changes in interest rates. For the Swiss National Bank, if inflation expectations drop, it may lead them to adopt a more accommodative monetary policy stance, which typically results in lower interest rates. Lower interest rates can make a currency less attractive to investors, leading to decreased demand for that currency and a resultant weakening.

Inflation expectations are critical because they shape investor behavior regarding currency. If investors anticipate lower future inflation, they may seek out other currencies with higher expected returns, putting downward pressure on the Swiss franc. Thus, a surprise change in inflation can have a significant and direct impact on the currency's strength.

In contrast, other economic factors like a rise in unemployment or a decrease in exports could also have negative impacts on the currency, but they may not always lead to immediate weakening in the same way a shift in inflation expectations can. While increased foreign investment tends to support a currency, it does not relate to the weakening of the Swiss franc directly.