It certainly can. Since more than 20 years ago! I remember that in 2003, as a "little kid", I changed my configuration from latin-15 to utf8 and it was alread

It certainly can. Since more than 20 years ago! I remember that in 2003, as a "little kid", I changed my configuration from latin-15 to utf8 and it was already supported. You can read here an explanation of how xterm handled ill-formed utf8 characters in 1999: https://www.invisible-island.net/xterm/bad-utf8/ https://www.invisible-island.net/xterm/bad-utf8/