The key takeaway Thursday was that the European Central Bank has shifted more dovish and there is scope for the ECB to cut by a larger 50bps if it was deemed necessary to get to a neutral stance more quickly than originally planned, said MUFG.

There was a bigger surprise earlier Thursday with the Swiss central bank's decision to cut the key policy rate by 50bps to 0.50%, wrote the bank in a note to clients. MUFG has argued in the past that the SNB was being too cautious and was behind the curve given the speed at which inflation was falling in Switzerland.

So the bank believes the SNB action Thursday was correct, although a little later than what was needed. It should help contain the appreciation of the Swiss franc (CHF) although risks remain skewed favoring further appreciation.

The problem remains the same -- the SNB is quickly getting into issues related to hitting the lower bound, stated MUFG. By 50bps the lower bound is now closer in sight but the SNB also needs to send a signal to the markets that it is willing to go below zero percent and back into negative rates if required.

The fact that this decision Thursday came in incoming SNB President Martin Schlegel's first policy meeting may be a signal of a bolder approach to policymaking going forward.

However, there was no strong message from the SNB on a willingness to go back into negative territory, pointed out the bank. Indeed, Schlegel argued that the pre-emptive nature of Thursday's move reduces the risk of having to go to negative rates.

However, MUFG thinks it may already be too late to avoid that. The annual inflation rate has fallen much more sharply than expected and is currently at just 0.7%. The SNB's forecast for annual inflation was raised very slightly in the updated Monetary Policy Statement Thursday and is estimated to be at 0.7% by Q3 2027.

Given the disinflation process in the eurozone and other major developed economies still has a little further to go and given the risk related to a continued strong Swiss franc, that SNB forecast looks optimistic, added the bank.

MUFG doubts this 50bps cut will have much impact in altering the path of the Swiss franc. Just looking at OIS curves for next year, the SNB is priced to cut by nearly a further 50bps to 0%. The ECB even after Thursday's cut is still priced to cut a further 130bps with the United States Federal Reserve to cut another 80bps.

The Swiss 10-year government bond yield is just 0.25%. Increased volatility, tariff-induced weak global growth and ongoing geopolitical risks certainly point to the need for the SNB to turn to negative rates and to increase its foreign exchange intervention, according to MUFG.

Until those policies become more apparent, the risk remains for the Swiss franc to strengthen further, mainly versus the euro and non-US dollar currencies.