Investors rushed into safe-haven assets on Friday after US air strikes in Iraq killed a senior Iranian military official, sending the Japanese yen to a two-month high, while the weakest US factory activity in a decade sent the dollar reeling.

In addition to the yen, US Treasuries, German bunds and gold rallied after the overnight air strike in Baghdad killed Qassem Soleimani, commander of Iran's elite Quds Force and architect of its growing military influence in the Middle East.

"Overall, geopolitical risk premia have risen substantially overnight. You're looking at inflows into the US dollar, Swiss franc, Japanese yen - investors really looking for safe havens and a port in the storm," said Karl Schamotta, chief market strategist at Cambridge Global Payments.

The US dollar index initially benefited from the move into safe-havens, but those gains were erased after the report of a contraction in the manufacturing sector in December. It was last unchanged on the day at 96.846.

The Japanese yen had risen as high as 107.91 per dollar and was last up 0.54% on the day at 108. The yen is often seen as a haven from risk, given Japan's status as the world's largest creditor nation. A holiday in Tokyo also made for thin conditions, exaggerating the move.