The Chilean and Mexican pesos slid to two-week lows against the dollar as investors turned risk averse after a US air strike in Iraq killed a top Iranian commander, causing tensions to flare in the Middle East.

MSCI's index for Latin American stocks fell 0.6%, while currencies in the region dropped 0.4%.

A cooling of trade tensions between the United States and China had helped raise demand for riskier Latin American assets, with the equity index poised to register its fifth straight week in the black.

The Latin American currencies index, on the other hand, is set to snap a four-week winning streak as it eyed a flat end to the week.

Chile's peso was 1.1% weaker at 761.65 to the dollar, its softest level since Dec. 16. Mexico's peso weakened to 19.036 to the dollar.

Mexico's creditworthiness came under increasing scrutiny in 2019, with two rating agencies flipping their sovereign outlook for the country to negative and one downgrading its rating.

Investors are now worried that Mexico and state-run oil company Pemex could risk downgrades in 2020.