New applications for US unemployment benefits recorded their biggest drop in nearly two years last week, pointing to a further tightening in the labor market.

But claims rose during the survey week for March nonfarm payrolls, set to be released on Friday, suggesting some moderation in the pace of job growth after two straight months of solid gains.

The Fed has pointed to a trajectory of two rate increases by the end of the year, which could potentially dampen the allure of high-yielding emerging market assets.

The Mexican peso strengthened 0.5 percent, while the Brazilian real weakened 0.1 percent.

Sentiment was mixed in Brazilian markets after President Michel Temer authorized changes to a planned pension reform to ease lawmakers' resistance to the controversial bill.

While the changes would likely increase the chance of approval, they could also mean less fiscal austerity, weakening Temer's efforts to balance Brazil's budget.

Brazil's benchmark Bovespa stock index slipped 0.1 percent.